Beyond the Bong

Death Cross vs. Golden Cross: Where Is the Marijuana Industry Headed?

Sometimes it can be hard to get out of bed.

For pot stocks, it’s been a tough couple of weeks.

And the North American Marijuana Index had a hard time finding something to be positive about last week…

Chart - North American Marijuana Index

After peaking early Monday morning, pot stocks gave up. The index tumbled almost 8% from its Monday highs to the end of the week.

We had two companies report earnings last week: Neptune Wellness Solutions (Nasdaq: NEPT) and Hexo Corp. (NYSE: HEXO).

Both helped spark larger sector drops.

And that brings me to something that’s been keenly contrarian…

Counterintuitive?

Following the sell-off over the past month, I turned to my trusted guiding light: the charts.

And I saw something I didn’t like.

The Horizons Marijuana Life Sciences Index ETF (OTC: HMLSF) had an event that’s historically recognized as bearish: the dreaded “death cross.”

This happens when a short-term moving average crosses below a longer-term one.

We get a “golden cross” when the opposite happens.

The most classic levels we use for this are the 50-day moving average versus the 200-day moving average.

But when we look at the one-year chart for the marijuana ETF, we see something quite contrarian…

Chart - Golden Cross Vs. Death Cross

Over the past 12 months, there have been five key moving average crosses!

That’s a significant amount. And it just shows how volatile the sector is.

What’s interesting is that a death cross was triggered on August 13, 2018. Instead of being bearish, the ETF bottomed a day later and surged higher.

The next death cross was triggered on December 20. Again, the market bottomed before rallying higher.

At the same time, we can see from the chart that the golden crosses are short-lived.

It feels counterintuitive, but these moving average crossovers have actually been signaling tops and bottoms for the Horizons Marijuana ETF over the past year. Not the usual rally or steep drop ahead.

And since our most recent death cross was June 6, it could be a good sign.

Oldies but Goodies

On the political front, Oregon is halting all new cannabis production for the next two years.

Finally!

We’ve previously covered that the state is awash in a pot surplus that has decimated prices.

That’s because Oregon has dished out 1,100 production licenses in the past three years. It now has enough weed to satisfy the needs of even its most prolific tokers for more than six years!

The bright side of Oregon’s oversupply? Cost-conscious cannabis consumers can get more bang for their buck. A gram is roughly $5.

Meanwhile, in another mature American market, a new milestone was hit…

In Colorado, state revenue from adult-use sales topped $1 billion!

Total sales of cannabis since 2014 have blown past $6.5 billion. And Colorado now has 2,900 licensed cannabis businesses, with 2019 on track to be the state’s most lucrative year yet.

The High Five

Below are this week’s High Five, where – each Monday – I cover the five pot stocks I believe will make major moves – up or down – in the week ahead.

1) Canopy Growth Corp. (NYSE: CGC) will report fourth quarter and fiscal year 2019 results on Thursday after the closing bell.

This will be a market mover. And all eyes will be watching this report.

Expectations are that the world’s largest cannabis company will record CA$99.23 million in revenue with a loss of CA$0.23 per share.

That’s the most important figure. Widening losses have plagued pot stocks in recent quarters. Though this would be a shrinking loss of CA$0.31 from a year ago.

Now, it appears analysts are becoming increasingly bearish on Canopy. The consensus loss has risen from CA$0.17 over the past 90 days.

This could be a good thing.

Or it could be the market adjusting expectations as Canopy has reported much larger losses than expected in the past three quarters.

2) Green Growth Brands (OTC: GGBXF) is betting on CBD to get consumers back in malls. It has opened more than 50 Seventh Sense Botanical Therapy shops in the past four months. And it expects to have 280 in operation by the end of the year.

Part of that will be accomplished through a new deal for 70 locations with Brookfield Property Partners (Nasdaq: BPY).

It’s also moving into Florida with the $54.65 million acquisition of Spring Oaks. This grants the company the right to open 35 dispensaries in the state.

Shares of Green Growth recently pierced their 200-day moving average. And they are approaching oversold territory.

3) Lift & Co. Corp. (OTC: LFCOF) will report fourth quarter earnings on June 24 before the opening bell.

The pot technology company also marked the first Father’s Day since Canada legalized adult-use. It released a poll that found that the majority of fathers – who are also cannabis consumers – would welcome a cannabis-related gift for Father’s Day.

I guess it’s time to trade in that traditional tie for a pipe or vaporizer!

4) Acreage Holdings (OTC: ACRGF) is one to watch in connection with Canopy. The deadline for shareholders to vote on Canopy’s proposed takeover of the U.S. multistate operator was this morning.

Acreage shareholders are expected to also receive an upfront cash payment of $2.51 to $2.63 per share on top of the ability for the company to accelerate expansion across the U.S. Not to mention access to Canopy’s brands.

Of course, U.S. federal legalization needs to clear the path for Canopy to acquire Acreage.

5) Medicine Man Technologies (OTC: MDCL) has been on a buying spree. The Colorado-based company had three new acquisitions in June alone! The most recent of these was $5.4 million for Colombia’s Green Equity S.A.S.

To address all these moves, the company will be hosting a conference call on June 25 after the market’s close.

As always, let’s compare our High Five with the industry’s benchmark

Over the past month, the Horizons Marijuana ETF has slipped more than 7%.

And not surprisingly, shares of Canopy have almost mirrored that performance…

Chart - The High Five

That’s because Canopy accounts for more than 13% of the marijuana ETF’s holdings.

For Green Growth Brands and Lift & Co., the past month has been exceptionally tough. Both have fallen more than 20%.

On the flip side, Acreage Holdings is outperforming the ETF. And Medicine Man is way out in front, gaining almost 20% over the past month on its bevy of big news.

I forecast 2019 would be a year of mergers and acquisitions for the cannabis industry. And we’ve seen that push and pull on share prices over the past several months.

That’s not going to end anytime soon.

Be prepared for major moves this week. Because the industry’s bellwether is reporting earnings and tallying the final votes for the largest acquisition in pot stock history.

If you have a pot stock in mind that you’d like me to discuss here, leave the ticker symbol in the comments section.

Here’s to high returns,

Matthew