Time to Bust Out the Rally Monkey
The marijuana industry seems to be catching its second wind with several stocks posting significant gains over the last couple weeks. However, we’ve already seen a bunch of strong bounces over the summer that only led to further sell offs and new lows. But things feel a little different this time. Yea, maybe it’s something in the air but I have that feeling in my stomach that you get right before opening your mouth and babbling nonsense when you’re drunk trying to pick up a hot girl at the bar. Actually, maybe that’s just my stomach telling me that nachos for lunch was a terrible idea and I should definitely have another shot of tequila. Either way, I have a feeling. And it’s a feeling that I haven’t had in months.
For those of you living under a rock and still using CDs to listen to music, November is going to be a HUGE month for the entire marijuana industry. And if recent trading action is any hint as to what’s in store for us then guys pull up your socks and tighten your belts, ladies adjust those brassieres and put on your most uncomfortable pair of heels because it’s rally time, I mean party time.
The country fell in love with weed after Colorado legalized its use on a recreational level earlier this year. Sure some conservative, narrow-minded, living-in-the-past groups had some concerns and negative feelings towards it, but hey who’s judging right. Nonetheless, the Colorado clear legalization has worked out tremendously. So much, in fact, that the state of Washington recently followed with a recreational legalization of its own. Colorado generated approximately $18.9 million in tax revenue from the retail sale of marijuana in just the first 6 months of 2014. Oh yea, and for those who said legal weed would be the start of The Purge, crime dropped by about 10% overall. Homicides went down from 17 to 8, a massive 53% drop, automobile break-ins went down from 2,317 to 1,477 (36%), and sexual assaults fell to 95 from 110 (14%). But yea, no those people were right; legal weed turned Colorado into a combination of hell and Isis occupied Iraq. Riiiiiight. I mean, when are nay-sayers going to run out of negative things to say already?
Anyway, back to how we can all make money from this shit. In November, Florida is voting to legalize medical marijuana and if passed would become the second largest medical marijuana market in the country behind California. Oregon and Alaska are set to vote on an all-out recreational legalization while D.C. is getting cute and voting to make it legal to grow and possess weed. So for those of you in D.C., just don’t walk down the street smoking a joint. But if the cops find weed in your car or plants in your basement, have no fear, you’re good.
As we get closer to the end of October, several marijuana stocks are doing an “about face.” Trading volume is on the rise and we are beginning to see 20%, 30%, even 40% gains in just one day. Still nothing like the triple digit gains we would see in one day back in Q1 of this year but it’s certainly enough to take notice. The key to these recent moves though isn’t so much the price appreciation but rather the trading volume increases we are seeing. When the initial hype busted a few months ago, trading volume essentially evaporated into thin air in the marijuana sector. Lack of investor confidence and premature business valuations are mostly to blame for that and rightfully so. The market took off like a bat out of hell on complete speculation. Hardly any of the companies actually had stable marijuana business operations never mind revenue and profit. But now months later, the strong companies are separating themselves from the weak and hopeful and giving investors a better sense for who’s legit and who just needs to quit.
This chart lists a few marijuana stocks that have experienced significant gains over the past month. Those highlighted in yellow had their upside moves coupled with increases in trading volume that are worth noticing.
What does this all mean? How can we be sure that this is the beginning of another industry rally and not just a dead cat bounce? Well, we don’t know. No one knows for sure. No one can ever be 100% sure of anything in the market. But we can make a pretty damn good educated guess. And when your educated guesses turn out to be right more often than not, people listen to you. I’m not saying that the entire marijuana industry is a screaming buy right now because it’s not. There are still many companies, some even on the list above, which will fail. The industry is still young; very young, but growing quickly.
So what do we do now? Well, the answer is not to go out and buy all the companies that recently experienced large gains. No, what we should gather from this favorable action is investor confidence. Confidence that this industry is heating up again and investors are comfortable putting money back in this space ahead of what could be a true milestone month for the entire marijuana industry. The regulation that goes down in November could set the stage for the future of the marijuana market across the country. And as the industry develops further so will the companies operating within it. It will be during this time that true industry leaders will begin to emerge. Trading activity is getting better by the day and I only expect things to further improve as we get closer to November’s crucial regulation votes. So do your research and pick your spots because I expect some even larger gains in the near future.
This is an extremely exciting time for us and you will one day look back on today and say, “I was a part of history. I was a part of one of the greatest American industry booms ever.”
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