Cannabis stocks rallied strongly against the backdrop of a Ray Charles ballad reimagined on Wall Street in Wednesday’s session. That said, let’s look at what’s driving the action off and on the price chart in three market leaders and offer risk-adjusted exposure to avoid getting burned.
Collectively, both Senate races in state of Georgia appear to be over as of Thursday, with the Democrats taking over control of the branch. And the outcome is important enough to appreciate a new rendition of Georgia On My Mind striking a chord with both parties. Nonetheless, the tight election isn’t stopping cannabis stock investors from casting their ballots.
As Cantor Fitzgerald writes regarding today’s political theatre, “We go from speculating what President-elect Biden could have done for cannabis reform via Executive Order (or by directives/”memos” from his incoming Attorney General) and if the Senate would have held a vote on the SAFE act (banking reform) would have even taken a vote, to a new world, in which the question is more about the timing and scope of much broader reform for the cannabis industry.”
So, what are some of the best cannabis stocks out there? These three names stand out:
Wait and see? If you trust the market as an accurate and forward-looking mechanism, bulls have won Congress and more lenient reforms and legalization for cannabis stocks are on their way. So, with these three industry plays, investors have the opportunity to separate the wheat from the chaff more safely with increased odds for success.
Cannabis Stocks to Buy: Canopy Growth (CGC)
The first of our cannabis stocks to buy are shares of Canadian-based Canopy Growth. CGC is partnered with Constellation Brands (NYSE:STZ) and the market’s largest publicly-traded company with a valuation of just over $11 billion. Canopy offers investors exposure to the industry through its global operations, distinct brands and products in medical and recreational markets.
Technically, shares are in strong position to improve upon this cannabis stock’s position within the group. With Wednesday’s bid, CGC has broken out of a high handle consolidation pattern and puts shares firmly above 38% Fibonacci resistance tied to its 2018 all-time-high. It bullish. And odds for a successful challenge and clearance of the 50% – 62% levels grow more compelling with Wednesday’s price action backed by a bullish stochastics crossover in neutral territory.
Favored Strategy: February $27.5/$37.5 Collar
Innovative Industrial Properties (IIPR)
Innovative Industrial Properties is the next of our cannabis stocks to buy. Think of a real estate investment trust as the landlord of the group. Specifically, it sets up sale-leaseback deals with cannabis producers. With 46 properties in 17 states, this nearly $4 billion powerhouse boasts profitability, a dividend of almost 3% and an interesting way to play the boom in cannabis which lays ahead.
Technically, shares are consolidating in a second stage base following a recent breakout from a “flattish” consolidation. In isolation, it’s promising price action. However, an overbought stochastics setup and price action pressed into the upper Bollinger Band suggest IIPR may be a stronger pullback candidate. Ideally, a test of support from about $142.50 – $155 would provide a nice area to pick up a standalone long stock position.
Favored Strategy: February $180/$200 Collar
Cannabis Stocks to Buy: Cresco Labs (CRLBF)
Cresco Labs is the last of our cannabis stocks to buy. CRLBF is a U.S. based medicinal cannabis producer. It operates 22 dispensaries from sea to shining sea, and enjoys a much larger reach through wholesale operations that sell Cresco’s broad range of branded cannabis products ranging from gummies to lotions.
Overall, this cannabis stock falls slightly under the radar. CRLBF trades OTC rather than on Nasdaq. It also doesn’t have listed options. Despite those shortcomings, though, an impressive market cap of around $2.5 billion — and CRLBF stock which is just breaking out of a well-constructed cup-with-handle pattern ensure this pot play won’t go unnoticed for long.
Favored Strategy: Breakout purchase with 15% stop-loss
On the date of publication, Chris Tyler does not hold, directly or indirectly, positions in any securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.