Cannabis and Hemp Sector Ideas

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>>> Constellation Brands bought a stake in Canopy Growth for a big premium, lighting a fire under other cannabis companies <<<


>>> Opinion: 11 marijuana stocks’ money flows show which are investor favorites


By Nigam Arora

Aug 17, 2018


https://www.marketwatch.com/story/11-marijuana-stocks-money-flows-show-which-are-investor-favorites-2018-08-16?siteid=yhoof2&yptr=yahoo


Constellation Brands bought a stake in Canopy Growth for a big premium, lighting a fire under other cannabis companies

There was a big bombshell in marijuana land.

Constellation Brands STZ, +0.72% known for its beer, wine and spirits, is investing about $4 billion in Canadian marijuana company Canopy Growth CGC, +9.15% Constellation paid a whopping 51% premium. So does that mean other marijuana stocks are worth about 50% more than they were before?

Marijuana stocks are highly volatile, and investors need help in properly investing and trading them.

One of the best tools is to look at the X-rays of the popular stocks in the form of segmented money flows. Money flows provide an edge to investors who want to beat the market and lower their risks.

Let’s explore by looking at money flows with the help of a chart.

Chart

• Momo crowd money flows — those of momentum investors — are extremely positive in Canopy Growth.

• Momo crowd money flows are mildly positive in Constellation Brands. Of interest is that smart money flows — those of professional investors — are negative in Constellation.

• Momo crowd money flows are extremely positive in Aurora Cannabis ACBFF, +4.63% Cronos Group CRON, +3.48% and Tilray TLRY, +4.85% In contrast, smart money flows are neutral in those stocks.

• In Neptune Technologies NEPT, -1.61% momo crowd money flows are positive but smart money flows are mildly negative.

• In popular Marijuana ETF MJ, +1.42% momo crowd money flows are positive but the smart money flows are mildly negative.

• Among pharmaceutical-related marijuana stocks with the exception of Zogenix ZGNX, +1.14% money flows are neutral in GW Pharmaceuticals GWPH, +1.59% and Zynerba Pharmaceuticals ZYNE, -4.41%

• Both smart money flows and momo crowd money flows are negative in Scotts Miracle-Gro SMG, +0.55% which pushed into the cannabis industry via hydroponic equipment and supplies.

Rankings

The chart also shows the relative rankings of some marijuana stocks. The rankings are based on the six screens of the ZYX Change Method. Please click here to learn about the six screens.

Risk-adjusted rankings are more useful for medium-term and long-term positions. Non-risk-adjusted rankings are more useful for short-term or trade-around positions.

What to do now

It may be tempting to follow the momo crowd. However, in view of the smart money being less positive, it is important to not be overly aggressive.

Constellation Brands represents smart money, but since the transaction was private, the purchase data are not included in the chart. The rationale Constellation described for buying stock in Canopy is all about the future. Cannabis is likely to become a $200 billion-a-year industry.

No one is arguing against the long-term future for cannabis. The issues that the smart money as a group faces are in the short- to medium-term. Canopy Growth’s earnings were poor. If it was not for the Constellation investment, Canopy Growth stock could have likely fallen under $20. That could have also caused other marijuana stocks to drop by as much as that. There is a risk of oversupply in the short- to medium-term.

On a fundamental basis the present valuations of marijuana stocks cannot be justified. Marijuana stocks are extremely expensive.

The best course of action for most investors is to take advantage of the volatility and be highly selective in buying when the right opportunities present themselves. Also be open to taking profits when sentiment becomes overly positive. When sentiment becomes overly positive, it is a contrary indicator. At The Arora Report, we have been highly successful with this approach.

Investors may also want to consider another technique that we have successfully used at The Arora Report over the years to often double returns. The technique is to hold a core position and then trade around the core position with shorter-term trade-around positions.

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