Cannabis: a catalytic move ahead?
3 min read
Not financial advice. Full disclaimer available here.
Yesterday, cannabis stocks soared 34% on news that US president Joe Biden will pardon all prior federal offenses for simple possession of marijuana.
The market took this announcement as a signal that federal legalization could be just around the corner. Today’s trading session is likely to end the bear market in cannabis which began in Q1 of 2021 and wiped out 80% of the industry’s market capitalization. The MSOS was up double digits pre-market and I expect the ETF to take out the high of August, thereby starting a new uptrend.
If the catalyst is here, then the returns will be spectacular. We are talking multi-bagger upside in a short time window.
Cannabis fits into the trading portion of the portfolio which I wrote about this week. However, there are many compelling fundamental reasons to go long cannabis:
The market opportunity is huge since the legal side of it is nascent
It’s a habit-forming, branded, and timeless product
The business is capital-efficient and recession-proof, or at least can be
Check out the piece from last year for a more detailed discussion on fundamentals.
In terms of game plan, the first decision is position size. This mostly depends on whether you consider cannabis an investment or a speculation. It’s the latter for me and the move from yesterday makes it challenging to pick a tight stop. So I intend to risk only 1% or 2%. A breakout above 13.82 on the MSOS chart would trigger my buy stop order for the ETF, and probably Verano as well.
A stop loss can be set at 8.7 and moved to the low of the day if we close above 13.82. If we clear that level and close above 14.69, the stop loss can be moved to entry for a risk-free trade (assuming the market does not gap down). In that case, it’s potentially worth adding to the trade.
Below are the levels for VRNO:
US ticker mentioned: MSOS 0.00%↑