Editor’s Note: An earlier version of this article stated that recreation marijuana is now legal in 11 U.S. states plus Washington D.C. The correct number is 10.
Looking for marijuana stocks to buy again? The group held up well in the first half of October, in the lead-up to Canada legalizing recreational marijuana. Since then, these stocks have suffered through a brutal slide. That is, until Tuesday. Shares perked up which is likely tied to the midterm elections.
Why?
Two states put forward proposals to legalize recreational marijuana, that being Michigan and North Dakota. One gave it the green light — Michigan. That makes recreational weed use legal in 10 states plus Washington D.C. Further, Ohio, Missouri and Utah also had some minor cannabis-related proposals on their ballot and all three were successful.
As acceptance grows, so too does the market. Now that marijuana is legal in more than 20% of the country, momentum and acceptance bodes well for pot stocks. In a way, Tuesday serves as a barometer for where on-the-fence states stand on the cannabis topic.
Furthermore, report from Cowen analysts arguing there’s a shortage of pot in Canada suggests that demand is strong. So where does that leave us now?
Marijuana Stocks to Buy: Canopy Growth Corp
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For some, buying marijuana stocks is far too risky. I definitely get that. For those that are nervous but still want exposure, there are still some options. The more risky of the two would be a direct investment in Canopy Growth (NYSE:CGC). The more conservative would be Constellation Brands (NYSE:STZ), which took a multi-billion stake in CGC in exchange for roughly 40% of the company.
With such a high-quality company like Constellation, it speaks hefty volumes for how its reputable management team views CGC. Should CGC stock be a big winner down the road, so too will Constellation Brands. Plus, investors get exposure to Constellation excellent portfolio of beers, wines and spirits.
That said, those comfortable with a bit more risk may want to consider investing directly in CGC stock. It’s the pillar of the marijuana stock movement, expected to benefit the most should momentum continue to grow over the years. Its chart is pretty darn healthy too.
The 200-day was a reasonable level to take some risk, although I would have gladly waited to see if the 200-day held and watched for a rebound over $36. We’ve hammered on about this level for a while now here on InvestorPlace. Now up over that mark, let’s see that it holds after the midterm elections.
If it can, CGC stock is a long. Above this mark and the 50-day moving average and $50 level are in the cards. Below and uptrend support (blue line) and the 200-day are back on table. As a bonus, its MACD is turning bullish too (blue circle).
Marijuana Stocks to Buy: Tilray
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Using a $100 stop-loss on a stock like Tilray (NASDAQ:TLRY) is likely too tight for aggressive traders. That said, using the October low near $85 is likely too risky for most investors.
Despite its valuation and from a trading perspective, TLRY stock looks good over $100. Admittedly, it has the 50-day moving average overhead, while the 21-day moving average looks to cross below the 50-day. That’s not exactly bullish, nor are the downtrend resistance marks overhead (purple lines).
That said, uptrend support is holding up, and even a “small” rally to resistance in TLRY can ignite big-time gains. On a close below $95, I’d bail on TLRY, as can be seen on the one-month chart below. Notably, Wednesday can still be a big driver for cannabis stocks overall (up or down).
I don’t like TLRY as much as CGC, but the risk/reward may be attractive for momentum traders who are looking for a big payout.
Marijuana Stocks to Buy: Cronos Group
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With a market cap of just $1.5 billion, Cronos Group (NASDAQ:CRON) is much smaller than both TLRY and CGC at $9.4 billion and $9.2 billion, respectively. But that doesn’t mean it should be ignored by traders looking for marijuana stocks to buy.
While using a $6 stop-loss would leave investors open to risk of 33%, this stock has clearly highlighted where its significant levels stand.
Uptrend support (blue line) comes into play near $6, as does the backside of prior downtrend resistance (black line).
Clearly going long at $9 and using a $6 stop-loss is too risky. For some maybe not, particularly those in the cannabis camp. But for me it’s too risky. In my view, aggressive traders can go long near current levels and use a close below the 200-day or channel support as their stop-loss. Conservative investors can hope for a pullback between the 100-day and 200-day and go long, with a stop-loss below uptrend support.
Look for possible resistance near the 50-day moving average at $10.25 and downtrend resistance near $11. The MACD is shaping up bullish and could pave the way to more momentum in CRON should marijuana stocks continue to rally on positive news.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
