Cannabis stocks have taken a bumpy ride in 2019, as several underlying issues have inhibited potential gains in the space. Of course, not all of the delines can actually be blamed on the legal marijuana industry itself.
Macro factors sent summer stock volatility to levels that are far outside the historical averages, and this weighed on many risky assets and small-cap stocks. No matter what an investor’s opinion of the legal marijuana industry might be, it’s hard to argue with the assertion that these stocks tend to fall into these categories in the view of most stock analysts.
Several cannabis stocks have held up well against all of the recent selling pressure visible in the market. Notable names here include Constellation Brands, Inc. (NYSE: STZ) and Charlotte’s Web Holdings, Inc. (CWBHF). Both stocks have actually seen strong gains during certain portions of this year, so any rebound back toward their prior highs might be enough to encourage investors.
Constellation Brands has posted gains of more than 20% on a year-to-date basis, which is far better than many analysts had originally expected for this stock during the current year. The company previously faced headwinds on several fronts, and several stock analysts used this as a reason to suggest a gloomy trend was likely to develop in share prices. Of course, this has not turned out to be the case as STZ shares have solidly outperformed the S&P 500, which has gained less than 18% this year (at the time of writing).
Shares of Charlotte’s Web stock have fared even better, as CWBHF is currently showing gains of nearly 27% on a year-to-date basis. It can be argued that the 2019 outlook for Charlotte’s Web was even more negative (bearish) but the stock’s performances this year have shown that cannabis stocks might not be the “risky” bet many had initially anticipated.
Perhaps the real measure of stock performance within the industry can be conducted using the Russell 2000 Index benchmark, which is generally used to gauge trend strength in small-caps. Since most stocks within the cannabis industry fall within this category, it’s important to note that the Russell 2000 has posted gains of just 11.28% on a year-to-date basis (at the time of writing).
Thus, key players within the legal marijuana industry have, essentially, outperformed on all levels (against both small-caps and large-caps). This is a fairly strong indication of where share prices are likely to be as we begin heading into next year.
Given all of the stock market turmoil that characterized the summer trading period, investors should take note of these trends that have become visible in the legal marijuana industry. If this sector is able to hold up this well during periods of extreme market uncertainty, investors will need to begin reconsidering their position as a “risk asset” within the broader market.
Of course, there are still several factors capable of dislodging the positive outlook (i.e. the recent vaping scare and its potential for continued lawsuits). However, investors should place their focus on the secular potential for growth rather than the short-term potential for negative news headlines. There are few sectors in the market capable of delivering this type of growth over the next decade, so this is where I will be looking to buy on dips when the opportunity arises.
About the Author: Richard Cox is an active investor with more than two decades of experience in the financial markets. He is a syndicated writer, with works appearing on CNBC, NASDAQ, Economy Watch, Motley Fool, and Wired Magazine. Market commentaries implement advanced technical analysis techniques to trade macroeconomic trends in foreign exchange, global index benchmarks, options, and the entire precious metals complex. Trading strategies generally adopt time horizons of one to six months. Follow his investment commentaries at https://Gold-Traders.com and https://AskTraders.com.