No sectors of the stock market were totally immune from the March selling capitulation, but the subsequent V-shaped rallies across the board have been impressive. Marijuana stocks have been especially strong, with the sector up about 50% from the March lows amid bullish technical charts.
This is expected to be a key year for marijuana stocks. Sales in 2019 were not as big as some had hoped after the legalization of recreational pot in Canada in October 2018. Revenue growth should be huge over the next few years as the industry grows from its emerging phase into a more structured industry.
The outlook looks bullish as marijuana companies restructure and streamline operations with the goal of containing costs, ramping up distribution and sales, and moving toward sustained profitability and free cash flow.
But while Canada looks for bigger sales, we all know that the holy grail is the further expansion of the massive U.S. recreational pot market.
In the meantime, I wouldn’t be surprised to see the emergence of merger and acquisition activity in the marijuana sector.
Larger, well-financed marijuana companies could gobble up some of the small pot operators that will face financing issues, especially during the pandemic as some access to capital dries up.
The ETFMG Alternative Harvest ETF (NYSE:MJ) plummeted to a 52-week low of $8.81 during the March sell-off, but has rallied about 50%.
The sustainability of the upside moves will likely depend on the sentiment in the broader stock market and higher beta assets.
Two Bullish Mid-Cap Pot Stocks
Curaleaf Holdings Inc (OTCMKTS:CURLF, CNSX:CURA) is a leading player in the legal marijuana sector. With a market capitalization of $3.1 billion, it’s one of the largest integrated pot operators.
CURLF stock is trading at around the midpoint of its 52-week range of $2.54 to $8.67. The near-term technical outlook is moderately bullish.
Curaleaf stock mounted a major V-shaped rally following the March lows. The below chart shows the potential emergence of a bullish golden cross if the 50-day moving average of $5.28 can break above the 200-day moving average of $5.54.
There are some technical indications that investors could see a better entry point for CURLF stock upcoming as the relative strength index (RSI) and moving average convergence/divergence (MACD) weaken.
The upper technical targets for Curaleaf stock are $7.50 and $8.00, reached in September 2019 prior to retesting $10.00 in May 2019.
Green Thumb Industries Inc (OTCMKTS:GTBIF, CNSX:GTII) is also a mid-cap, with a market cap of $2.0 billion. GTBIF stock has been extremely bullish, spiking higher from its March low of $3.69 to the current $9.68.
The V-shaped rally drove Green Thumb Industries stock to a golden cross pattern. The 50-day moving average of $8.74 broke above the 200-day moving average of $8.34.
GTBIF stock is firmly above the key moving averages and is looking bullish. Next up is channel resistance at $10.50 to $11.00.
But before further upside moves, Green Thumb Industries stock could face some weakness and a better buying opportunity as the RSI and MACD are softening.
Eventually, GTBIF stock could take out key resistance at $12.00 and $16.00.
We can expect a much-improved operating environment for marijuana companies going forward.
The initial euphoria toward marijuana stocks is over, and companies such as Curaleaf Holdings Inc and Green Thumb Industries Inc will now have to prove they are viable businesses.