In this week’s Marijuana Market Update, I answer a viewer email about three cannabis stocks and Congress.
Greg emailed his question to Feedback@MoneyandMarkets.com:
I recently purchased Curaleaf, Tilray and YOLO based on the assumption that the Republicans will lose both the House and the Senate now that Roe v. Wade has been overturned, thus shooting Republicans in the foot.
There should be nothing impeding the SAFE Banking Act if my assumption is correct. I don’t believe there is much time to buy at these depressed prices, if true. Thanks for considering my question.
— Greg.
Greg, thanks for your question.
There is a lot to unpack here. Let’s start with the politics.
Midterm Elections and the Cannabis Market
Yes, Democrats currently control both the House of Representatives and the Senate.
They control the Senate with the vice president’s tiebreaker vote. The 100-person chamber is split 50-50.
The assumption that Democrats could gain a majority in both chambers may be a little “pie in the sky” thinking.
Many projections have them maintaining a slim majority in the Senate and losing it altogether in the House.
But it’s American politics — anything can happen.
If what Greg said comes to pass, then no, there is little to holding back passage of the SAFE Banking Act. That would give cannabis companies access to traditional banking services that they don’t have now.
There would also be little resistance for the Cannabis Administration and Opportunity Act (CAOA), the bill that would decriminalize cannabis on the federal level.
But if Republicans gain seats in either chamber, it’s a safe bet that both of those bills are dead.
12-Month Overview of TLRY, CURLF & YOLO
Let’s look at the stocks Greg mentioned.
This chart shows the one-year daily returns of Tilray Brands Inc. (Nasdaq: TLRY), Curaleaf Holdings Inc. (OTC: CURLF) and the AdvisorShares Pure Cannabis ETF (NYSE: YOLO).
Over the last 12 months, all three have suffered significant declines.
We can look at each stock for a clearer picture.
CURLF Stock Analysis
Let’s start with Curaleaf:
CURLF is a Massachusetts-based cannabis operator with 134 dispensaries and 26 cultivation sites across 22 states.
The stock was down as much as 55% in July, when the rest of the cannabis market was taking a bath as well.
It has started to rebound and is trying to break through resistance at the $6 mark.
Analysts at Jefferies cut revenue expectations for Curaleaf, Trulieve, Cronos and Canopy Growth, citing oversupply in the market.
TLRY Stock Analysis
Next, we can see Tilray:
TLRY is more global than Curaleaf, with operations in the U.S., Canada, Europe, South America and Australia.
The stock had a nice bounce in March and April but has since pared all those gains and gone lower.
TLRY’s 67.3% decline as I write is the largest decline of any of Greg’s three stocks.
Of note, Tilray announced its CBD beverages are coming to shelves in 13 states through a partnership with Southern Glazer’s Wine & Spirits.
YOLO Stock Analysis
Finally, there’s YOLO:
YOLO is an exchange-traded fund (ETF) that invests in growth and value stocks in the cannabis space.
Its biggest holdings are the AdvisorShares Pure U.S. Cannabis ETF (NYSE: MSOS), Village Farms International Inc. (Nasdaq: VFF), Innovative Industrial Properties Inc. (NYSE: IIPR) and Tilray.
YOLO holds the MSOS ETF to gain additional exposure to multistate operators (MSOs).
The stock has declined in a big way, but it has gained some value back since hitting a bottom in June.
How Congress Could Affect These Cannabis Stocks
All three of these stocks have come up from their bottoms, but that doesn’t mean they won’t go back down.
The idea of Democrats gaining more control in the House and the Senate, thus paving the way for the SAFE Act and CAOA to be passed, is interesting. But a lot can change between now and November.
For reference, FiveThirtyEight.com has Democrats maintaining control of the Senate while losing control of the House.
In that situation, both cannabis-related bills won’t reach the president’s desk anytime soon.
Bottom line: All three of these stocks are good, but I like to see more of a confirmed uptrend before jumping in because we don’t know if we’ve reached a bottom yet.
Out of these three, Tilray seems to have the strongest uptrend.
However, trading on the possibility of Congress passing some form of cannabis reform is not the best idea for me. Things are just too wild in Washington.
I hope that answers your question, Greg.
That’s all for me this week.
One more thing: Any questions? You can get Money & Markets swag by submitting a question for me, Adam O’Dell or Charles Sizemore that we’ll use in any of our videos. Just send us your questions and feedback.
Where to Find Us
Make sure you subscribe to our YouTube channel and get notified each and every time we post a new video.
We have a lot of great weekly video features on our channel, including:
Ask Us Anything — Adam, Charles and I answer your investing questions.
The Stock Power Podcast — Our weekly podcast where I show you the trends and analysis that moves the market.
All these series are on our YouTube channel.
Also, you can follow me on Twitter (@InvestWithMattC), where I’ll give you even more insights, not just in the cannabis market. You can also check out my new Stock Power Daily series on the Money & Markets website. I give you a new stock every day that I expect to outperform the market based on our proprietary Stock Power Ratings system.
Safe trading,
Matt Clark
Research Analyst, Money & Markets