(Updates story first published July 18 to add Tilray’s IPO.)
Money is to be made in marijuana stocks in the long run. But the recent buzz may be overdone.
Canada’s Tilray TLRY, +0.00% has become the first cannabis company to conduct a U.S. IPO. The shares were priced at $17 per share, higher than expectations due to oversubscription. The stock has soared after it started trading Thursday for the first time.
There may be sympathy plays in other cannabis stocks for a short-term trade. But don’t let your guard down based on sentiment around Tilray’s stock. Markets are not simple when investing for the long term. Investors need expert guidance. Not only are investors not getting needed guidance, they are getting burned by supposed gurus. Read on for the proof.
Let’s start with two charts.
Please click here for an annotated chart of marijuana stock Canopy Growth CGC, -2.38%
Please click here for an annotated chart of marijuana stock Neptune Technologies NEPT, -2.95%
Please note the following from the charts:
• Canopy Growth stock ran up on excitement about the legalization of marijuana in Canada, and many gurus are urging investors to buy this stock as a once-in-a-lifetime opportunity.
• The Arora Report made a negative call on Canopy Growth near the high when most gurus were pounding the table to buy marijuana stocks. I received some hate mail but nothing like when I gave a signal to sell the gold ETF GLD, -0.93% and silver ETF SLV, -1.61% at their highs. Please see “Investors are making stoner moves by buying marijuana stocks at the wrong time.”
• Neptune Technologies ran up on excitement over a deal with Canopy Growth.
• The chart shows that The Arora Report not only made a negative call, but short-sold Neptune Technologies near the highs.
• Both Canopy Growth and Neptune Technologies have significantly fallen since The Arora Report’s negative calls.
• The charts show that the smart money (professional investors) was selling near the highs.
• When The Arora Report gives a signal, it almost always simultaneously gives a target zone ahead of time to take profits. The chart shows that the first target zone for taking profits has already been hit.
Similar price action has occurred in other popular cannabis stocks such as Cronos Group CRON, -0.44% and Aurora Cannabis ACBFF, -1.17%
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Cannabis pharmaceutical stocks
The price action is dramatically different in cannabis-related pharmaceutical stocks such as Zynerba Pharmaceuticals ZYNE, +1.67% Zogenix ZGNX, -1.10% and GW Pharmaceuticals GWPH, +0.16% Please see “What to expect from marijuana stocks after the first big medical cannabis win.”
We described to our subscribers the classic “sell the news” reaction in GW Pharmaceuticals stock. GW Pharmaceuticals is a buyout target. A buyout can happen north of $200. The Arora Report subscribers have made a lot of money from buyouts. To date, 137 of our portfolio companies have been acquired, generating large gains. This does not mean that GW Pharmaceuticals’ stock should be bought now. Prudent investors would want to wait for a buy signal.
There is a long-term opportunity to make a lot of money in marijuana stocks. However, investors have to be very careful as, currently, valuations are very high and sentiment is very positive. Often, very positive sentiment is a contrarian signal. It is best to patiently wait for buy signals. In the meantime, there are many opportunities outside marijuana stocks. Examples of where it makes sense for aggressive investors to consider buying on pullbacks are Facebook FB, -0.02% Google GOOG, -0.28% GOOGL, -0.47% Apple AAPL, +1.09% and Amazon AMZN, -0.43%
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.