As a growing roster of states legalizes recreational cannabis sales, will stocks like GrowGeneration (NASDAQ:GRWG)
, Curaleaf (OTCMKTS:CURLF)
and Power REIT (NYSEAMERICAN:PW)
be chill and relaxed, or will they go on a tear?
There’s been good news for the industry lately, as New Mexico, New York and Virginia legalized recreational cannabis sales this year. More states are expected to follow.
But that hasn’t yet translated into big gains for the cannabis industry as a whole. Many cannabis stocks peaked in February and March, and are still in the midst of price consolidations.
The marijuana index confirms the industry downtrend. The index, operated by ManifestSeven, tracks publicly traded North American stocks involved in the cannabis industry. These stocks represent a range of sectors, including real estate, agricultural technology, marijuana products, finance, and others.
The index is down 50% since February 9, as opposed to growth for major stock indexes during that time. While the future of cannabis seems full of green, there’s still plenty of volatility among its stocks, which investors should take account.
Index component GrowGeneration sells supplies for growing cannabis, such as nutrients and hydroponic gear. It also has a service offering facility and cultivation-room design and is available to consult on major projects. It operates 52 locations in 12 states.
The Denver-based company went public in December 2019 and rallied 1,031% since its IPO. It’s been correcting since mid-February and declined 7.85% over the past three months.
The company has been profitable since 2019. Revenue growth has been astounding lately, with triple-digit growth in the past eight quarters.
GrowGeneration reported fourth-quarter and 2020 results in March. Full-year 2020 revenue was $193.0 million, a 143% increase from 2019. Earnings per share came in at $0.11, up 175% from 2019.
The stock rallied to a high of $67.70 on February 10, then pulled back into its current consolidation. Trade has been somewhat sloppy and volatile in recent weeks, with wide price swings. The earnings report didn’t give the stock any rally power, and it’s trading below its 50-day moving average. Shares closed Monday at $45.34, down $1.76.
The stock is nowhere close to a buy point. If it can clear resistance above its March 22 high of $59.32, ideally in heavy volume, that may present a viable entry.
Fellow index component Curaleaf Holdings is also in a correction after retreating from its February 10 high of $18.38.
Curaleaf runs dispensaries serving customers in the medical and recreational markets. It operates 104 dispensaries in 23 states, as well as cultivation and processing facilities.
This is also a fairly new public company, making its public debut in November 2018. It’s yet to turn a profit, but analysts expect that to change this year, eyeing earnings per share of $0.09, with that growing to $0.31 per share next year.
Revenue has been stellar, growing at triple-digit rates over the past eight quarters. Revenue growth accelerated in the past two quarters, coming in at $230.3 million most recently.
The company has a strong presence in the northeastern U.S. In last month’s earnings call, CEO Joe Bayern said, “In 2021, we expect to see the positive benefits of the transformative legalization of adult-use cannabis in Arizona and New Jersey. As we have stated, we believe New Jersey will accelerate the potential of future adult-use in key states such as New York, Pennsylvania and Connecticut. Each of these markets present an enormous growth opportunity for us, as Curaleaf is the only MSO (multi-state operator) with a leading presence in every one of these states."
The stock’s correction is tracking that of its industry. Shares closed Monday at $13.09, down $0.75. With Monday’s action, it undercut the existing structure low of $13.45. There could be further room to fall in this consolidation, so a buy should not be attempted until the stock turns higher in heavy volume.
Finally, Power REIT, a very small stock with a market cap of just $143.4 million, is currently forming a cup with handle base, but the handle is already extended beyond an ideal length, at a 16% decline.
On the plus side, the stock is getting support above its 50-day line.
Power REIT is a real-estate investment trust focusing on three industries, including Controlled Environment Agriculture greenhouse facilities used for cannabis cultivation.
As a REIT, this has a built-in attraction for investors: Earnings are passed through to investors in the form of dividends.
Revenue growth has been accelerating for six quarters. In the most recent quarter, revenue was still only $1.4 million, although that up 122% from the year-ago number.
Earnings also grew at double- or triple-digit rates during that time, coming in at $0.51 per share, up 200% year-over-year.
Although the stock is holding above its 50-day line, it’s a risky buy at this point. Watch for upside trade to overcome resistance above the handle high of $50.81, in heavy volume. As a small stock, watch out for volatility which could cause a fast shakeout.
Featured Article: Google Finance Portfolio Tips and Tricks 7 Stocks That Cathie Wood is Buying And You Should Too
If you’re an investor that likes to go with the “hot hand,” then they don’t get much hotter than Cathie Wood. The founder and CEO of ARK Investment Management delivered returns of over 100% in all five of her firm’s exchange-traded funds (ETFs) in 2020.
The names of her funds showcase some of the hottest emerging growth trends in the market: financial technology (fintech), genomic revolution, innovation, autonomous technology/robotics, and next generation internet.
As you would expect, these funds contain some of the hottest growth stocks from the past year. And in the aftermath of the tech selloff, Wood is not backing away. In fact, she’s doubling down on her strategy. It might not be exactly a matter of being greedy while others are fearful; perhaps more like being prepared while others are distracted.
But the other thing about Wood’s selections is that many of them are not obscure names. These are companies that were among the hottest names in 2020. Wood simply believes that they still have room to run. And that’s one reason you should consider making them a part of your portfolio.
In this special presentation, we’re giving you just seven of the stocks that Cathie Wood is buying or has bought recently. We’ve attempted to pick out at least one stock from each of the ARK ETFs. As with any investment decision, it’s important that you perform your own research before making a decision.
View the "7 Stocks That Cathie Wood is Buying And You Should Too"
Companies Mentioned in This Article
Compare These Stocks
Add These Stocks to My Watchlist