The Marijuana Bounce Portfolio
All Sectors on Wall Street Move in and out of Various Stages of both Optimism and Pessimism. Tides Rise and Tides Fall – Taking all Ships With the Tide.
The Tide in Marijuana Stocks has Fallen and We Think Another Rise is Coming. Here’s What to do Now.
We’ve seen this movie over and over again. With the Internet, Biotech, Stem Cell, Solar Power, Restaurant, Blockchain, Oil & Gas, Patent Monetization and even Gold Stocks – all going through sporadic and dramatic ups and downs.
The rise is easy to see. Frequent articles in mainstream media and speculators cleaning up. Chat boards get massively popular (SeekingAlpha, InvestorsHub) and ‘How to’ Conferences with audiences applauding the CEO experts with ponytails or funny-sounding names, popping up everywhere.
Sector-specific funds and ETF’s getting launched and then the tell-tale oversubscribed IPO’s – (clowns to the left of me, jokers to the right), which continue raising millions on questionable business plans.
During rising tides, a Gold mining company founded in 80’s may morph into a Blockchain company in 2017 and then when that tide fell morphed again into a Cannabis company when that tide rose in 2018 (PS, they’ll go back to mining when gold crosses $2,000).
During this most recent deflation, we sidelined it for about six to nine months on the Marijuana stocks and instead spent time waiting and building a precious metals portal called Institutional Gold Research (you really must subscribe for this up coming bull market). But for now, we’re coming back to Marijuana.
KRAMER WONDERS IF THE BUBBLE IS ABOUT TO BURST, WE THINK IT ALREADY HAS AND IT’S TIME TO GO FISHING!
Money can be made after bubbles burst. Big money, even!
Read our article posted on LinkedIn on Amazon’s post-bubble trading. Note also, we’re not saying the Cannabis bubble has fully burst (or will), despite a multibillion-dollar contraction, it’s merely deflated big-time!
Having been on Wall Street for over 40 years, and like we’ve said, we’ve seen this movie before. So let’s drill down a bit to see how we can benefit from the rising and falling tides, rather than just pontificating about it.
It works like this:
When the large-cap stocks are doing well (think Tilray: TLRY) $100’s of millions or even billions can be made by investors. Investors who bought Tilray at $20 when everyone said to stay away from Cannabis stocks, start believing they were ‘genius’ when it hit $160. And why not? A $20,000 position grew to $160,000. A large position of $200,000 grew to $1.6 million and a small institutional stake of $2 million grew to $16 million. Even spouses marveled at these investor’s genius, as they drove away to work in their new convertible Maserati, when just a couple of years ago they were asking, “Shouldn’t you get a real job, that’s more steady?”
What also happens during the rising tide stage is some investors run, count their blessings and buy Yachts or vacation homes. But many more investors (greed isn’t always good) start looking for another (the next) Tilray trading under $20 or with boldened confidence, start fishing for stocks under $1.00. They use new money, use profits from the sale of Tilray, or God forbid, they put Tilray on margin – the sorriest of all moves.
And for a while, everything they touch turns to gold. $2.50 stocks run to $10 and $0.20 stocks run to $2.50. Then more and more Tilray investors start thinking “Ride Sally Ride.” The $100,000 they turned into $1 million, will surely be worth $10 million in three years they think, once the US legalizes recreational pot!
Sally would dance all night long, this is what I say to you, yeah
How we fly we doin’ till we die
We dancin’ till the night is through
Then Ride Sally Ride, turns into Mustang Sally, almost overnight.
Mustang Sally, think you better slow your mustang down
You been running all over the town now
Oh! I guess I’ll have to put your flat feet on the ground
Yup, unfortunately the game ended, the headliners on CNBC like Tilray (TLRY) got body-slammed from $150 to $40, Cronos (CRON) took a vicious right cross from $22 to $12, can do no wrong Canopy (CGC) get sucker-punched from $50 to $25, while investors in Canntrust (CTST) lost all trust as it plummeted from $12 to $2.00.
HOT IPO GREENLANE DRIVES INTO THE DITCHLANE.
We warned about this in late 2018. “2018 Was Rough Sledding for 4 Big Marijuana Plays, Canopy Growth, Aphira, Aurora and CannTrust.”
So what now?
Well…while the above carnage was happening, the same investors who took a 10 or 20 thousand dollar flyer on a micro-cap or IPO and who saw a $120,000 stake in Canntrust fall to $20,000 – AND started indiscriminately selling (slash and burn) every single micro-cap they owned. “Hit the bid, get me out.” This is especially true for investors who owned NASDAQ listed stocks like Tilray on margin and who got the dreaded margin call.
If you bought 1,000 shares of Tilray (yup, someone did) at $100 on margin, all you had to come up with was $50,000. At $50, you have a 100% loss, because while you still own $50,000 worth of Tilray, you still owe the broker $50,000. Of course along the way to $50 from $100 – investors get margin calls. As in the broker says ‘send more money, or send $10,000’ or we’ll start selling your Tilray.
At that point, the investor can send in $10,000 (new cash) or sell his or her $10,000 non-marginable stake in one of their microcaps, let’s call it ‘Amazing Growers.’
90% choose to hit Amazing’s bid (instead of selling any Tilray or sending more cash), making Amazing Growers look less amazing each and every trading day.
It doesn’t matter if Amazing Growers truly is amazing. It doesn’t matter what news they report, or if the 10,000 acres of the world’s most amazing weed they planted months ago with IPO money, is about to be harvested and sold giving the Company it’s first revenues ever.
And that’s how some micro-caps actually become undervalued. Yes, imagine that! Undervalued.
This then is time to go fishing. And fishing, we are going.
Where to start? You can start wherever you want. Often times is best to start with what you sold. We’ll start with some of the terrific little companies we first found a year ago which have A) been indiscriminately sold and B) more importantly done what they said they were going to do.
WHILE THERE ARE LITERALLY HUNDREDS of candidates that are down close to 90%, names like Crop Corp, Biome Grow, Tinley Beverage, and the Alkaline Water Co., quickly come to our mind as bounce candidates.
We’ll come out with a list of ten to twenty names and call it the Marijuana Model Bounce Portfolio. Shouldn’t take more than a week. Sign up for our newsletter if this email was forwarded to you, to see the names.
Marijuana Bounce Portfolio
One caution with this strategy. Some of the companies that have been beaten down, spent every penny of their IPO money planting plants and/or building dispensaries or concocting some CBD energy drink. They may have raised $10 million at $1.00 assuming they would do a second round at $3.00 but now their stock is at $0.20.
So fresh money may be needed. This will cause dilution – which won’t kill the stock if they invest new funds wisely – but may reduce the upside somewhat (or a lot). So don’t willy-nilly assume stocks left for dead will go back to or above their old highs if the sector recovers, of which there is no assurance.
If those companies can go back to their old investors who know and believe the story for more funding, great. But if they can’t, they may have to go the convertible toxic financing route (especially if costs exceed revenues) to keep the doors open, then it’s truly game over.
Hundreds of soon to be toxic micro-caps will vanish into $0.0001 land.