A MJ EPIC READ:
SLEEKSCAPE’S 2018 MARIJUANA MANIA THESIS
THE MECHANISTICS OF A MANIA
The cryptocurrency craze. The Nasdaq internet sector supernova. Cabbage Patch Kids. Elvis.
Manias are periods of time marked by outlandishly gargantuan growth spurts in the perceived value of a bitcoin, a stock, a doll, a rockstar. They are captivating to observe and thrilling to experience. This is where boredom goes to die. Dopamine.
In the stock market world, manias tend to occur most frequently in novel and revolutionary industries possessing the potential for gigantic growth rates, stratospheric ceilings and global dissemination.
An equity sector mania is marked by a tremendous surge in buying interest coupled with an unusually low selling interest. Demand overwhelms supply and stock prices escalate rapidly as many investors recognize the potential for enormous returns, and as a result, hold for far bigger profits than usual. This “strong hands” mentality serves to further decrease the freely tradable shares or “float” of a stock and amplifies the strength of the upward movement in price. As the demand for shares continues to increase over time with rising numbers of incoming investors, the concomitant dwindling of the available supply serves to significantly heighten the value of the stock. In such an environment, sentiment becomes the primary driver of stock price as traditional valuation metrics like market capitalization are rendered essentially irrelevant. In a true cannabis mania, returns of several thousand percent are readily achievable if one owns the right portfolio of stocks.
The OTC marijuana sector is certainly no stranger to manias, which seem to have a predilection for even calendar years – 2014 and 2016 representing the two most recent occurrences.
The marijuana sector mania cycle resembles a hybrid of the euphoric elevator ride and deflating crash of the 1999-2000 internet stock bubble mixed with the cycling nature of a catalyst-driven craze with an uncertain future like bitcoin.
THE 12 STAGES OF THE MJ SECTOR MANIA CYCLE
Manic Mania
Strong Mania
Mediocre Mania
Hot
Warm
Lukewarm
Cool – CURRENT STAGE
Cold
Icy
Colorado Bear
Canada Bear
Polar Bear
Here is the cycle broken down into its four main constituents:
MANIA
Manic Mania
Strong Mania
Mediocre Mania
PREMANIA
Hot
Warm
Lukewarm
DEFROSTING
Cool
Cold
Icy
FROZEN
Colorado Bear
Canada Bear
Polar Bear
2014, 2015, 2016, 2017: A TEXTBOOK ILLUSTRATION OF THE CATALYST-BASED MANIC CYCLING NATURE OF THE OTC MARIJUANA SECTOR
2014/2015
Anybody who witnessed the 2014 MJ MANIA will never forget it. A stock gaining 75000% in just 10 weeks is a story worthy of satire and science fiction. But it actually happened. I watched it. SPLI did move from .0006 to .45 in 70 days.
Colorado initiated sales of recreational marijuana in dispensaries on January 1st and the media fell in love with the story. CNBC, CNN, FOX NEWS, MSNBC, CBS, NBC, ABC. The New York Times, The Los Angeles Times, The Chicago Tribune. Local rags from the Denver Gazette to Youtube channels in Bangladesh. The world’s media covers a truly historic moment like a gigantic tarp. The internet. Radio. Print. Television. Podcasts. In workplace cafeterias and cubicles. In Gymnasiums and Barbershops. On college campuses. On ski lifts. On Pluto. Everywhere you turned, somebody was talking about legalized pot in Colorado.
What began as a polygonal news story about Colorado as the ultimate marijuana trailblazing state in America -- with all of its socioeconomic, political, and historical dimensions -- quickly transitioned into a tale about the rapidly escalating marijuana stocks and ever-growing numbers of newly minted penny stock millionaires. It was a double marijuana mania. The economic sector and the stock sector. With omnipresent media attention focused on both stories.
The party lasted almost 3 months. And then the SEC halted PHOT, the leading symbol of the marijuana stock uprising and the most heavily traded ticker in the universe of pot stocks. And then a second halt. And a few more for good measure. The mania had ended. A single catalyst had sparked the mania and now it was extinguished. With a complete absence of mania-worthy future catalysts, the rest of 2014 was a bloodbath and the entirety of 2015 was a mere continuation on continually decreasing trading volumes.
The pattern of manic cycling with an even year/odd year alternation in the cannabis sector was cast.
2016/2017
The year 2016 held a lot of promise. The severe depression in MJ stocks for nearly two years led to a marked decline in stock prices, with the large scale money outflow draining the sky high valuations to more investable levels. Many even described the MJ stocks as undervalued and cheap.
The main factor in common to both 2014 and 2016 was a bona fide catalyst.
The November 2016 election was shaping up to have a tsunami of states on the ballot.
And not just four medical states, but five states for recreational cannabis, including both coasts. The largest state in the union and the first northeast metropolis state -- California and Massachusetts – along with Nevada, Arizona and Maine. This was huge.
And to make things even more bullish, Hillary Clinton was heavily favored to defeat Donald Trump and the democratic party platform contained the recommendation to change marijuana’s federally illegal Schedule I status to Schedule II, essentially a de facto proclamation of federal legalization of medical marijuana.
The ramification of such a rescheduling would be profound as banks would finally be able to work with the marijuana industry. Corporate marijuana was about to arrive. And financial institutions would be able to provide traditional financing to marijuana companies, opening the floodgates to mammoth growth in the private sector. Marijuana companies would become investment-worthy and be trading on the Nasdaq/NYSE within the next 18-24 months with federal legalization by 2020. It felt like all the stars were aligned for MJ mania to grip the sector once again.
And sure enough, the sector begun to turn around in early 2016. By March, it was obvious that serious money flow into marijuana stocks had returned and the 4/20 effect was back.
The stocks then experienced their typical summer doldrums, compounded by the DEA’s decision to keep cannabis listed as a Schedule I substance.
But on the first market day after Labor Day, the sector roared back to life, THE 2016 ELECTION GRAND SALAMI was born and the first bona fide mania since 2014 was sparked. It was BOOM TIME. Over the next two months leading up to Election Day on November 8th, the media covered the ramifications of this election for the American marijuana legalization movement. With telephone polls in California, Massachusetts and Nevada indicating big wins for recreational marijuana legalization, the cannabis stocks skyrocketed. Clinton remained heavily favored and expectations were a continuance of the Obama era policy since 2013, marked by the Cole memo, which permitted states to be laboratories of democracy for marijuana legalization without federal interference so long as certain conditions were followed, essentially erasing any fear of a federal government crackdown.
The outcome of the 2016 presidential election was a huge upset. The polls were dead wrong and Trump emerged victorious, bringing several unexpected ramifications for the cannabis sector.
There were two major reasons why The Trump victory caused the end of the 2016 MJ Mania.
The first is obvious -- Trump’s position on rescheduling marijuana was nebulous at best, and two of the most ardent and nationally well-recognized cannabis prohibitionists, Jeff Sessions and Chris Christie, were heavily favored to be appointed to positions in his cabinet. This naturally led to fears that a federal crackdown on marijuana and a reversal of the Cole memo was quite possible.
The second was more subtle but just as damaging.
The outsider underdog candidate taking down the Clinton political machine was such an enormously historical political event that it swallowed up media coverage about all other Election Day results. Nobody was talking about the marijuana revolution anymore. The media’s attention on marijuana turned off so quickly, it almost felt like California, Massachusetts, Nevada and Maine had actually voted against adult use legalization. The media was 100% Trump, 24 hours a day. Without any positive media attention to bring new investors into marijuana stocks, fear of the unknown and a potential federal crackdown took hold.
So instead of the election serving as a catalyst for marijuana going mainstream, things seemed to be frozen in time, or even worse, potentially moving backward. The marijuana sector consequently tanked and the general sentiment shifted from euphoria to a mix of anxiety and deflation.
While many investors left the marijuana sector after the election, the dip created by the massive selloff in November was stabilized in December by investors who hoped the silence on the issue of marijuana legalization meant that Trump’s pro-entrepreneurialism and support of free enterprise would extend to the burgeoning American cannabis economy.
In early 2017, with continued silence from the incoming administration on marijuana policy, the sector started to warm up again and a reawakening of the 2016 election mania seemed like a distinct possibility. In late February, Sean Spicer and Jeff Sessions both made threatening comments about the possibility of a federal crackdown on marijuana, which quickly dampened sentiment. During the remainder of 2017, with no significant positive catalysts on the horizon, the marijuana sector collapsed under the fear of government interference.
The fundamental lesson of 2013-2017 is clear: The development of a mania based only on a single catalyst, in the absence of any additional near-term positive catalysts, is vulnerable to disruption by a significant negative disturbance.
THE 2018 MARIJUANA MANIA
2014 BOOM… 2015 BUST… 2016 BOOM… 2017 BUST
So many are now saying the pattern is set for 2018 to be BOOM
And sure, patterns certainly possess predictive value but we have a lot more going on in 2018 than just the latest data point in a sequence.
The sociocultural climate has undergone a significant transformation in a relatively brief period of time. Just a decade ago, the dominant winning arguments against recreational legalization were concerns about adolescent usage, the gateway theory and remnants of reefer madness. Now the winning arguments are in support of ending the marijuana prohibition. In the past few years, social justice issues have moved to the forefront amid concerns about the targeting of certain minority populations, namely African Americans and Latinos, who are arrested for possession of marijuana at a much higher rate than Caucasians, even though usage rates are nearly identical. Economic arguments have also swelled in popularity with renewed focus on regulating and taxing cannabis instead of continuing to waste government funds fighting a losing war. For the first time in the history of the well-regarded Gallup poll, Republicans favoring legalization have reached a majority of 51%, an increase of 9 points in just the last year alone. In the same poll, 64% of Americans overall favored legalization.
Support for medical marijuana legalization has been polling consistently above 80% and in the latest Quinnipiac poll, an overwhelming 94% of respondents believed in the cause.
The geopolitical landscape has shifted dramatically as well, particularly in the Western Hemisphere where Mexico, Puerto Rico, Chile and Colombia have legalized medical marijuana.
Uruguay has already legalized recreational cannabis and Canada is on track to do so in the summer of 2018.
In the United States, the entire plant is now fully legal for medical purposes in 29 states, and for recreational in the District of Columbia and the following 8 states – Colorado, Washington, Oregon, California, Massachusetts, Alaska, Nevada and Maine.
Marijuana has some serious momentum in America these days.
MARIJUANA STOCKS: A CATALYST DRIVEN SECTOR
The most logical way of thinking about the cycling movement of the marijuana sector from 2014-2017 is that it is driven by catalysts.
Positive catalysts cause the eruption of manias, which can start immediately after an event or 1-2 months beforehand.
Colorado starting recreational cannabis sales in January 2014 and California/ Massachusetts/Nevada voting for recreational legalization in November 2016 are the textbook examples.
Negative catalysts end manias and start depressions, as occurred in March 2014 with the SEC halting several pot stocks, in November 2016 with Trump’s election victory increasing the likelihood of fierce prohibitionists Sessions and Christie becoming cabinet members, and in February 2017 with the Sessions/Spicer comments signaling the possibility of a federal crackdown on recreational marijuana.
Once a negative catalyst has caused a depression, the absence of any future positive catalysts ensures the depression will continue.
By the same token, positive catalysts are required to end depressions.
The last two bear markets lasted from March 2014 - February 2016 and from February 2017 - November 2017, only ending due to the 4/20/16 and 1/1/18 (CA recreational sales) catalysts, respectively.
So the idea that manias in the marijuana sector cannot last longer than 2-3 months is not supported by thoughtful analysis. With a sample size of only two manias, both ended by negative catalysts, it is more logical to conclude that negative catalysts have the power to end manias triggered by a single catalyst; otherwise, it is likely both manias would have continued for longer periods of time.
It is quite clear that the marijuana sector does not cycle randomly but due to the impact of positive catalysts, negative catalysts and longer periods with no catalysts at all.
THE CHARACTERISTICS OF CATALYSTS
Amplitude:
Positive or Negative
Duration of Effect on MJ sector:
Short: Days to Weeks
Medium: 1-2 Months
Long: 3 Months or more
Significance:
Major or Minor, rated from 1-10
Colorado in 2014 (MAJOR) -- 10
Nevada in 2016 (Minor) -- 4
Directness Quotient:
Direct Catalyst
The event itself acts as a direct catalyst, such as Colorado recreational sales on 1/1/14
Indirect Catalyst (Discussion catalyst)
Most catalysts possess more than just an event-based component.
Many times the discussion and media attention surrounding a catalytic event (can be positive or negative) and the associated emotions attached to it also acts as a catalyst itself.
The Spicer and Sessions comments initially acted as a direct catalyst, but they also led to an ongoing discussion in the media about the future possibility of a federal crackdown on marijuana.
That negative possibility caused prolonged fear, which caused a sustained sector selloff.
The lengthy period of discussion that followed the Spicer/Sessions comments and the associated investor sentiment that arose as a result are hallmarks of an indirect catalyst.
Most direct catalysts cause some type of discussion that can have a prolonged effect – it is usually just a matter of degree.
I like to think of a direct catalyst having an immediate effect and the discussion surrounding it (the indirect aspect) dictating the significance and duration of the catalyst as a whole.
The example above describes the direct and indirect nature of a negative catalyst – of course, a positive catalyst and its resultant discussion can lead to a sustained sector rally as well.
SUPERCATALYSTS
These are the biggest catalysts of all, the real gamechangers.
There are only two remaining:
Rescheduling of cannabis (de facto federal medical marijuana legalization)
Federal legalization of recreational cannabis
THE 2018 CATALYSTS
JANUARY 2018
California will begin sales of recreational marijuana on the first day of the new year
Amplitude:
Positive
Duration:
Long
Significance:
Major – 9
Direct Catalyst:
California is the biggest state in the union and the 6th largest economy in the world
California’s native population is 40M and annual tourists number 270M
Even just with medical sales only, they currently generate the most cannabis revenue of any state at $2 Billion
California marijuana revenue expected to grow to $5 Billion next year, taking national sales from $7B in 2017 to $10B in 2018
We’ve recently seen the Canadian pot stocks enter a mania, in part due to upcoming adult use legalization in July 2018, and California’s cannabis market is even larger
Indirect Catalyst:
Loudly signals the marijuana revolution is too strong to stop now
Huge momentum booster to kick off the new year after a dreadful 2017
Blatantly exposes the raw hypocrisy of the largest state in the union selling a federally illegal substance
The media is going to have a field day with this hypocrisy
Expect to see editorials in major newspapers around the country supporting a rescheduling of marijuana
Bigtime national media coverage on television, radio, internet, social media, blogs, forums will further the discussion and debate around rescheduling
International media coverage
Banking solutions should move to the forefront of discussion as well
Increases pressure on Congress to move cannabis to Schedule II
JANUARY/FEBRUARY 2018
Vermont legalizes recreational marijuana via legislature
Amplitude:
Positive
Duration:
Short
Significance:
Minor -- 2
Direct Catalyst:
First non-ballot recreational cannabis legalization bill gets signed into law
This bill is for non-commercial legalization, so it permits home grows and possession but not storefronts
The bill permitting commercial cultivation, production and dispensaries is likely to pass in 2nd half of the year
Indirect Catalyst:
Any historical event generates media attention and discussion
Always most difficult to be the first to do something new or different
Breaks down barriers and paves the way for other east coast states -- New Jersey, Delaware, Connecticut, Rhode Island -- to follow suit in 2018
MARCH/APRIL/MAY 2018
New Jersey legalizes recreational marijuana via legislature within first 100 days of Governor Phil Murphy’s tenure
Amplitude:
Positive
Duration:
Long
Significance:
MAJOR with a capital MJ -- 9
Direct:
Unless Delaware beats it to the punch, New Jersey would become the first state to pass commercial recreational legalization of cannabis through the legislature.
Cultivation, production and dispensary licenses are included in bill
Indirect:
Proves that Massachusetts was no fluke, now two bigtime northeast states are full-on legal
New Jersey would handily become the 2nd largest state by population to legalize adult use MJ
Has great potential to trigger a state legislative tsunami of recreational cannabis in 2018 as Rhode Island, Connecticut, and Delaware follow suit -- all three could legalize by year end, with Delaware being the favorite to be next
New Jersey and New York are attached at the hip and the discussion around recreational legalization in New York’s legislature will increase significantly (though I don’t expect NY to pass recreational until 2019)
The close geographic proximity to the financial epicenter of America will attract serious money interested in investing in New Jersey MJ
The population density of the NY/NJ metropolitan area is massive and citizens from surrounding states (New York, Connecticut, Pennsylvania) would make the size of the NJ cannabis market absolutely enormous – this also incentivizes those neighboring states to get their asses in gear on legislation lest they lose out on tax money to Jersey cannabis
Takes the baton from California and intensifies the drumbeat of pressure on Congress to reschedule cannabis
MAY/JUNE/JULY 2018
Epidiolex (cannabis-derived CBD) receives FDA Approval
Amplitude:
Positive
Duration:
Long
Significance:
MAJOR – 9.5
Direct:
GW Pharma’s epilepsy drug has the experimental data required to support its approval
Would become the first actual cannabis-formulated medication to receive FDA approval
Essentially 100% cannabis-derived cannabidiol (CBD), which is currently Schedule I
FDA indication for Lennox-Gastaut and Dravet Syndrome
Application submitted on 10/30/17
Indirect:
If FDA approves Epidiolex, by law the FDA/DEA will have 90 days to reschedule it.
GW Pharma is requesting Schedule IV so that is likely what will happen.
The approval and rescheduling of cannabis-derived CBD means that for the first time the federal government is admitting that CBD has medical value.
Because there are three different synthetic THC drugs that are currently FDA approved (Marinol, Syndros, Cesamet), the government has already basically admitted that THC has medical value.
Logic would follow that if CBD and THC admittedly have therapeutic value, how can the cannabis plant remain on Schedule I?
We already know that logic doesn’t motivate the FDA and DEA when it comes to the issue of rescheduling cannabis – the former is controlled by big pharma and the latter is law enforcement, two parties that stand to be hurt financially if cannabis was rescheduled.
So I don’t expect the FDA or DEA to reschedule cannabis.
However, what I do anticipate happening is that the gargantuan hypocrisy of the situation will lead to the generation of enormous media attention and public pressure to reschedule cannabis.
The public pressure will be transmitted into political pressure on Congress to reschedule cannabis as a Schedule II substance.
If Congress has not already rescheduled cannabis before Epidiolex attains FDA approval, or before Epidiolex (CBD) is rescheduled, then I anticipate that Congress will reschedule cannabis within 1-3 months of Epidiolex’s (CBD) rescheduling, most likely in the late summer or early fall.
The bottom line is the minute Epidiolex (CBD) receives FDA approval, the media attention and discussion revolving around cannabis’ imminent rescheduling will be the biggest single catalyst to hit the sector since Colorado began sales of recreational marijuana in January 2014.
So months before cannabis is actually rescheduled by Congress, the discussion around this topic will serve as an indirect catalyst to light up the MJ sector.
JULY 2018
Canada legalizes recreational marijuana and begins sales
Amplitude:
Positive
Duration:
Medium
Significance:
Major – 7
Direct:
Federal legalization of recreational cannabis in Canada is a harbinger of what’s to come for America in the next 24-36 months
Lays out a roadmap for federal legalization of medical and recreational cannabis in America
Normalizes adult use cannabis to those in government and society who still require convincing
Indirect:
If Congress has not yet rescheduled marijuana, the pressure on them to do so will continue to increase
Canada makes America’s perspective on the issue of cannabis look very antiquated
Establishes a blueprint that America can use for eventual federal legalization of recreational cannabis in 2020-2021
JULY 2018
Massachusetts begins sales of recreational marijuana
Amplitude:
Positive
Duration:
Long
Significance:
Major – 7
Direct:
The first northeast state to sell recreational marijuana in dispensaries will be a huge news story on the east coast.
Allows nearby states with legalized medical marijuana to observe firsthand that adult use cannabis sales will not destroy society via reefer madness.
Indirect:
Encourages NY, CT, RI, PA to hop on board the adult use MJ bandwagon
Until another northeast state starts selling recreational cannabis in dispensaries, Boston may become the Denver of the northeast as people from nearby states travel to purchase cannabis
Makes the tax revenue argument for adult use legalization more effective
AUGUST/SEPTEMBER/OCTOBER 2018
Congress Reschedules Cannabis as a Schedule II Drug
Amplitude:
POSITIVE
Duration:
Long
Significance:
MAJOR – 10 – This is a SUPERCATALYST
Direct:
The cumulative pressure from the biggest state in the union and the first northeast metropolis state starting sales of recreational marijuana (CA and MA, respectively), the first state in America to pass commercial recreational marijuana through the legislature (NJ) and the FDA approval of cannabis-derived CBD (Epidiolex), all occurring within the first half of 2018, ratchets up the political pressure for Congress to finally face the music and solve the hypocrisy of fraudulently maintaining cannabis as a Schedule I Drug.
The vote isn’t even close.
De facto federal legalization of medical marijuana.
Indirect:
This is the single most important event in the history of cannabis in America.
If you missed out on 2014’s Mania, you will have another chance to experience what the most extreme stage in the MJ Sector Mania Cycle feels like.
This is MANIC MANIA.
Enjoy it.
This is one of only 2 remaining SUPERCATALYSTS in the MJ sector, with the last one being federal legalization (There were three, but Colorado starting recreational sales on 1/1/14 was the first)
The number of ramifications is astounding and I can’t possibly cover them all, so I will touch on some of the most important.
Rescheduling cannabis as a Schedule II Drug will pave the way for banking to open up, as cannabis will no longer be considered federally illegal.
This is great for the industry itself, as now companies won’t have to stash hoards of cash in safes any longer.
It will also change the game in terms of access to capital.
Banks and other financial institutions will now be able to loan money to aid the growth of the industry.
Investment capital will flood the sector, as cannabis now becomes “safe” with the chance of any significant federal interference now extinguished
If there ever was a green light for an industry this is it.
Marijuana stocks will go vertical and it will feel like 2014 again.
Many will shift focus to not if, but when marijuana stocks will be allowed to uplist to Nasdaq – my guess is somewhere between June-September 2019
And now that medical marijuana is no longer federally illegal, the industry will naturally begin talking about the final SUPERCATALYST – federal legalization of recreational marijuana, the granddaddy of discussion catalysts.
NOVEMBER 2018
Michigan, Ohio and possibly Arizona on ballot for recreational marijuana
Amplitude:
Positive
Duration:
Short
Significance:
Major – 6
Direct:
Michigan and Ohio pass recreational legalization by the people
If Arizona gathers enough signatures in time, it will pass there as well
Indirect:
This would ordinarily be a pretty big deal, since the Midwest is currently a recreational cannabis desert, and in a single election, two pretty large states would put an end to that.
But everything is about timing.
And everything is relative.
After rescheduling, most catalysts will likely seem a lot less exciting than they may look on paper.
If cannabis has not been rescheduled by Congress before the elections, and Democrats win a congressional majority, then rescheduling is likely to happen quickly – so that would certainly increase the significance and strengthen the catalyst of the 2018 elections apart from MI/OH/AZ
Miscellaneous catalysts:
Delaware, Connecticut, Rhode Island and Vermont could all legalize recreational marijuana via legislature at different times throughout the year, though I expect the majority to take place in the 2nd half.
As single catalysts, none of them can compare to New Jersey, though I think Delaware is pretty significant because of the proximity to Washington DC, and Connecticut is important because it borders New York -- and if neighboring New Jersey and Connecticut pass recreational marijuana via legislature in 2018, the discussion of New York joining the gang will be pretty loud.
THE UNIQUENESS OF THE 2018 MARIJUANA MANIA
The marijuana sector is clearly a catalyst driven sector.
We have seen two manias thus far and both were triggered by only a single catalyst (Colorado becoming the first state to sell recreational marijuana in 2014 and CA/MA/NV/AZ/ME on the ballot for recreational marijuana in 2016)
Both manias lasted only 2-3 months and ended due to the occurrence of a negative catalyst (SEC halts and Trump/Sessions/Christie), coupled with the fact that there wasn’t a second positive catalyst in the near future to counterbalance the negative catalyst.
2018 is a calendar year that is full of potential major catalysts.
Real gamechangers.
And the first SUPERCATALYST since January 2014.
California selling recreational marijuana.
New Jersey passing recreational marijuana through its legislature.
Epidiolex (CBD) receiving FDA approval.
Cannabis being rescheduled by Congress.
That is really a GRAND SLAM of catalysts.
And in addition, Canada will legalize recreational marijuana and begin sales, Massachusetts will begin recreational sales, and Michigan/Ohio will become the first Midwest states to legalize the plant for adult use. And Delaware, Connecticut and Rhode Island may join the gang via legislature.
So the number of bigtime catalysts makes 2018 a completely different ballgame than 2014 or 2016.
The significant catalysts are also spread out throughout the calendar year.
Broken down into quarters, California is Q1, New Jersey is Q2, Epidiolex approval and CBD rescheduling is Q2/Q3, Massachusetts is Q3, Canada is Q3, Congress rescheduling cannabis is Q3/Q4, Michigan/Ohio/Arizona is Q4.
And remember, the date of the catalyst is not the start date of the catalyst’s effect on the marijuana sector. Discussion and media coverage surrounding catalysts typically becomes louder 1-2 months beforehand and stays louder for several months afterwards.
Indirect (discussion/media attention) effects should cause a continual stream of positive sentiment from January through December.
It really does seem like we have a very legitimate chance for an entire year of mania in the MJ sector.
Now that doesn’t mean there won’t be periods where the sector isn’t completely on fire.
But the most likely scenario is that when the sector isn’t outright manic, it remains at least warm (similar to February 2017 before the Sessions/Spicer comments) throughout the year.
Another ramification of the multiplicity of significant catalysts is that if there is some negative disturbance in the MJ Sector, there are near-term additional positive catalysts to counterbalance its effects, so it is unlikely that any single negative catalyst can shutdown the mania. The marijuana sector in 2018 is much more bear-proof than in prior manias, even in the event of a negative catalyst.
The most sound argument against the hypothesis that 2018 will be a yearlong mania is that some of the important catalysts don’t actually materialize.
Or that some don’t happen on the timetable as outlined above.
These are all only potential catalysts and some of them are more likely to occur than others.
That’s something we will just have to wait and see about…
So what about the pink elephant in the room?
Can Jeff Sessions and the Department of Justice rain on our marijuana mania?
I suppose it is theoretically possible.
Is it likely to occur?
Not according to the evidence we have collected throughout the year.
In March, Sessions talked tough about potentially cracking down on marijuana, saying it was only “a slightly less awful life-wrecking dependency than heroin.”
But that was March, shortly after his appointment to Attorney General.
In the interim, he commissioned a task force -- replete with career prosecutors and law enforcement officials -- to let him know his feasible options with respect to federally cracking down on marijuana.
And according to the Associated Press who read through the report, the surprising recommendation of the council was to continue following the Cole Memo.
It’s been nearly 10 months since Sessions was sworn in and his DOJ has not interfered with any states this year.
Why would they start now?
Political pressure is certainly moving in the wrong direction, as the latest Gallup Poll clearly shows – 64% of Americans are pro-legalization, including 51% of Republicans (up a whopping 9 points since 2016).
Over 70% polled say to leave the states alone.
Medical Marijuana has a 94% approval rating, according to Quinnipiac’s latest poll.
94% of Americans agreeing on any issue is really rare.
And the biggest state in the union is about to start sales of recreational marijuana in about two weeks.
It certainly seems a little late in the game to interfere with states’ rights.
I do expect the DOJ to declare their official policy on cannabis enforcement pretty soon, and it might be a bit more stringent than the Cole memo, but any significant state interference would have to be considered relatively unlikely at this point.
But anything is possible – aside from Willie Nelson and Snoop Dogg giving up marijuana and joining the DEA -- so we will just have to wait and see.
GRAND SALAMI STOCK PICKING METHODOLOGY
THE 2016 ELECTION GRAND SALAMI METHODOLOGY – MCOA, AMMJ, CNAB
Reverse Engineering the 2014 MJ MANIA
With the seemingly gigantic catalyst represented by the November 2016 elections looming ahead and its probabilistic concomitant mania, in the Spring of 2016 I embarked upon a comprehensive analysis of the 2014 MJ Mania. Since history tends to repeat itself, I sought to reverse engineer the 2014 MJ mania to determine which specific factors possessed the greatest predictive capacity for identifying the stocks with the highest probability of delivering outsized returns -- I wanted to develop a comprehensive blueprint and subsequently pinpoint which components of the model would lead to the highest % gains for my MJ portfolio in the fall.
After approximately 500 hours, the deconstruction of the mechanistics of the 2014 MJ Mania into its component parts was completed. Relying somewhat on my firsthand experience deconstructing the late 1990’s Nasdaq internet sector mania -- you can read about it here -- http://investorshub.advfn.com/boards/read_msg.aspx?message_id=136784484 -- and much more strongly on my graduate school training in the methodology of instrument construction, I reviewed each and every MJ stock and divided about 350 stocks into 4 quartiles by performance as judged by % gain from trough to peak.
I removed the stocks in the middle quartiles so I was left with the top performing quartile and the bottom performing quartile.
Then I performed a series of statistical analyses including discriminant function analysis and factor analysis, along with a variety of other statistical methodologies and mathematical simulations.
Strongly resembling my primordial findings from 1998, the final product was a factor-based algorithm whose composition was very heavily weighted towards measures of sentiment. Supply/Demand factors were the second most important construct. Technical factors were significantly lower weighted. And not surprisingly, similar to the internet sector mania, traditional fundamental factors (revenue, revenue growth, profit margins) and valuation metrics (P/E ratio, market capitalization) possessed no predictive value.
From the lowest priced shares purchased to the peak price in November:
MCOA gained 5600% -- from .0035 to .1985
AMMJ gained 2370% -- from .085 to 2.10
CNAB gained 2040% -- from .1565 to 3.35
THE 2018 GRAND SALAMI METHODOLOGY
Reverse Engineering the 2014 & 2016 MJ MANIA
I performed the same analysis once again, this time on both MJ manias
SALAMI factors were extracted directly from the statistical analysis of the 2014 and 2016 MJ Manias -- those are the factors that possess predictive value for stock performance by % gain inside of both manias
Utilizing a weighted scoring system, a preliminary SALAMI score is calculated for every MJ stock
IPA THEORY is an outgrowth of my intensive study of the sentiment-based SALAMI factors -- it is my attempt to break down sentiment into its essential constituents... you can read more about it here: http://investorshub.advfn.com/boards/read_msg.aspx?message_id=136788597
All MJ stocks with a preliminary SALAMI score greater than the 75th percentile are assigned scores for the IPA subfactors, which together comprise the IPA score
The final SALAMI score is a composite measure consisting of the preliminary SALAMI score and the IPA score
Only the MJ stocks that score at or above the 90th percentile for the final SALAMI score meet criteria to be potentially selected for entrance into THE GRAND SALAMI
The 2018 GRAND SALAMI selections are made based on a combination of the final SALAMI score and my personal judgment
In the end, I believe the collaboration amongst statistical formulation, mathematical computation and human analysis provides the very best results
THE SUBSECTOR SUPERMANIA
The key to the biggest returns during a MJ MANIA
When reviewing the stocks ranked by % gain from highest to lowest in THE 2014 MJ MANIA, it became apparent that stocks in the same subsector did not trade independently of one another, but instead tended to trade in specific clustering patterns stratified by performance. The mania was so strong in 2014 that nearly every marijuana stock achieved tremendous gains; however, it was readily apparent that certain subsectors vastly outperformed others. Vaporizer stocks generally experienced superior returns, in comparison to other subsectors such as lighting, security and financing. Stocks whose primary business plan revolved around vaporizers, along with stocks who merely announced they were entering the vaporizer industry became absolute rockstar Kangaroos hopped up on Adderall. Everybody who witnessed the unfolding of the mania remembers the singular posterchild encapsulating the utter ridiculousness of it all as the vaporizer play SPLI meteorically rose 75000% in 10 weeks.
The utter dominance of the vaporizer subsector during the 2014 MJ Mania calls out for a new term: SUPERMANIA.
Although stocks residing in the Supermania subsector generally possess the greatest potential to experience the rarefied air of 99th percentile returns, the clustering of stocks within a given subsector by performance was not so clean and absolute that every single vaporizer stock achieved the most superior returns. Many of them did not.
Only the very best of breed stocks within the vaporizer Supermania vastly outperformed nearly every other stock in the MJ universe to achieve Superman-like returns.
We saw a similar phenomenon during the 2016 MJ Mania where the best performing subsector this time around was the all-purpose cannabis stocks. There were more than a dozen of them and as a subsector they handily outperformed the MJ sector as a whole.
But only the top stocks in that subsector – MCOA, AMMJ, and CNAB -- participated in the SUPERMANIA.
In early 2017, a SUPERMANIA in cannabinoid pharmaceutical stocks occurred, and once again only the very best of breed stocks in that subsector participated in it -- OWCP and CNBX.
So it seems the key to picking the very best stocks in the 2018 MJ MANIA will be to first predict which subsector will experience the SUPERMANIA, followed by identifying the best of breed stocks in that subsector.
Best of luck to everybody in the 2018 MJ MANIA,
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