The world is gripped by fear.
Global cases of COVID-19 are threatening to cross the 110,000 mark with more than 3,800 deaths.
As a result, anxiety is rattling the broader markets.
Including today’s dramatic, circuit breaker-triggering drop.
We know that coronavirus is devastating travel. Airline and cruise companies have watched their share prices be cut in half.
But the issues are far more widespread.
That’s because everything truly is “Made in China.”
And companies from Apple (Nasdaq: AAPL) and Hasbro (Nasdaq: HAS) to PayPal (Nasdaq: PYPL) and Starbucks (Nasdaq: SBUX) have issued warnings about the virus’s impacts on their supply chains and businesses.
Don’t make the mistake of believing pot stocks are immune.
China is the manufacturing floor for the world after all. And that includes the plethora of widgets and gizmos cannabis companies need to make some of their most popular products.
Vaporizer hardware and other necessary components for vape pens are shipped from China to American and Canadian marijuana companies.
But now, with Chinese production grinding to a halt, shipments of much-needed parts are being delayed by a month or longer.
This is problematic.
Despite the vaping crisis that slammed cannabis markets last year, stores can’t keep up with demand for vape pens. Particularly in Canada since the launch of Cannabis 2.0 products.
Now, companies like KushCo Holdings (OTC: KSHB), Tilray (Nasdaq: TLRY) and others are sitting on stockpiles of unbranded product. That will ease the lack of parts from China.
But this potential coronavirus supply impact is merely the latest in the growing number of problems facing the industry.
Though we must keep in mind that every dark cloud has a silver lining.
Shorting cannabis stocks was a real moneymaker in 2019. And it continues to pay off this year.
The BetaPro Marijuana Companies Inverse ETF (TSX: HMJI) is obliterating pot stocks, as well as the Dow Jones Industrial Average, Nasdaq and S&P 500 year to date.
Since its inception last May, the Marijuana Inverse ETF has gained more than 130%!
That’s a double in a sector setting new lows.
So as the industry continues to struggle with these headwinds of C-suite exits, mounting losses, dwindling funding and now the potential of a coronavirus supply shock, going short provides an opportunity to score big gains.
And until the industry – and the broader markets – finds solid footing, investing in inverse ETFs, shorting or buying puts will continue to provide excellent hedges that every investor must consider.
The High Five
Below are our High Five, where each Monday I cover the five pot stocks I believe will make major moves – up or down – in the week ahead.
1) Columbia Care (OTC: CCHWF) is one of the few pot stocks that is hanging in there in 2020.
The American multistate operator will report fourth quarter earnings tomorrow before the opening bell. In January, when Illinois began adult-use sales, its Chicago dispensary saw recreational sales outpace medical 7 to 1.
2) CV Sciences‘ (OTC: CVSI) shares are hovering above their 52-week low of $0.56.
The company is the second-largest operator in the U.S. CBD space and will report fourth quarter earnings tomorrow after the closing bell.
Expectations are for an 18.6% decline in sales to $11.58 million, with a loss of $0.01 per share. CV Sciences has missed expectations for three consecutive quarters.
3) Alcanna (OTC: LQSIF) shares hit a new 52-week low on Friday.
The company is one of the largest alcohol retailers in North America. It also operates the cannabis retail chain Nova Cannabis. And it’ll release fourth quarter results on Thursday before the market opens. Expectations are for a 22% increase in sales to CA$206.4 million. Alcanna has missed the consensus for four consecutive quarters.
4) Sundial Growers (Nasdaq: SNDL) will report fourth quarter results on Thursday after the closing bell. Wall Street is looking for $33.19 million in revenue with a loss of $0.18 per share. The Canadian cannabis, herb and ornamental flower grower has really seen its shares struggle in 2020.
5) Canopy Growth Corp. (NYSE: CGC) announced last week it was laying off 500 workers and closing the doors on two British Columbia greenhouses. It’s also nixing plans to operate a third greenhouse in Ontario.
Canada currently has too much cultivation and not enough stores. So the move by Canopy isn’t too surprising. Shares tumbled 18% last week on the news and the broader market sell-off.
Our benchmark, the Horizons Marijuana Life Sciences Index ETF (OTC: HMLSF), set new 52-week lows on Friday.
Of this week’s High Five, only Columbia Care is outperforming our benchmark. And the fact that it’s lost “merely” 8% so far in 2020 means it’s not only outperforming the broader cannabis sector, but also outperforming the Dow and the S&P.
This is a trying stretch for cannabis, as well as the broader markets. COVID-19 panic has infected every corner of the market. So we’re stuck in this game of waiting for cooler heads to prevail.
But, as always, there are opportunities – like going short for gains.