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Monday, October 26, 2020

A Technical Analysis of CANOPY GROWTH CORP COM NPV (OTCMKTS:TWMJF)

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CANOPY GROWTH CORP COM NPV (OTCMKTS:TWMJF) and other cannabis stocks have quieted down in recent months. News and press releases have fallen to the lowest levels of the year, trading ranges have tightened up, shares have been pressured lower and the excitement of investing in this sector has taken a back seat to Bitcoin, Ethereum and other Digital Currencies. This is normal in the fickle investing world where attention shifts to whatever price or valuation is trending higher at the time.  When the media cycle stops focusing the light on you, any movements or good will cause prices and volume drop off.  This is happening in the cannabis sector and it seems the only thing that will wake up the sector to the previous limelight is legalization on a federal level.

I started to review the price action and news in TWMJF, who is recognized as a leader in the space and carries the only real billion dollar valuation at $1.06 billion with 165.22 million shares outstanding. They are regarded as one of the few “pure plays” in the cannabis sector who produces and sells medical marijuana in Canada and the US. They offer dry cannabis and oil products primarily under the Tweed and Bedrocan brands. TWMJF also has an active online distribution channel, and was formerly known as Tweed Marijuana Inc. and changed its name to Canopy Growth Corporation in September 2015. The company is headquartered in Smiths Falls, Canada.

CANOPY GROWTH CORP COM NPV (OTCMKTS:TWMJF) has quietly rallied in June trading from $4.96 to $6.50. This change in trend reverses the lower channel that has been in place since February when prices reached a peak of $10.14 so far for the year.

This decline, where shareholders lose half of their value, was not unique to Canopy Growth, but was happening in nearly every cannabis stock in the sector. The chase from new buyers was settling in for all cannabis stocks, no matter if they were in the recreational or medical subsector, and it was revealing itself in lower volume and lower prices, which is why the silent turn we are seeing in prices and volume may be telling us something about the timing for news about changes in the federal laws.

The issue for cannabis stocks was that nearly all companies had already factored in positive changes in the passage of federal legalization for cannabis. Moreover, the longer the Trump administration sat on its hands the more the air would come out of the cannabis sector balloon.

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As an analyst in the cannabis sector, I think the turn here in TWMJF is important because price moves long before news in all stocks. A review of the pedigree names in the sector show this type of price action. This rally we see is most likely short covering as we head into the holiday. It would be a career ending mistake to be short the largest company in cannabis, when the laws changed, specifically when your investment thesis was to be long the cannabis sector itself.

Good portfolio managers made money shorting the overbought cannabis sector, and stocks like CANOPY GROWTH CORP COM NPV (OTCMKTS:TWMJF) traded from $10.00 down to $5.00 while the news was great. It was a classic “buy the rumor and sell the news” scenario that veteran portfolio managers had seen before. It is important to note that these same smart investors are taking this bet off the table covering their shorts and getting long as we wind up the quarter and prep for the second half of 2017. This small blip on the radar screen in cannabis may be a larger ping for upcoming changes in the federal laws related to cannabis. For continuing coverage on shares of $TWMJF stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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