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Feb. 13, 2019, 4:20 p.m. EST

Aurora Cannabis is a prime example of why marijuana investors should focus on money flows

With Aurora Cannabis and most other marijuana stocks, sentiment and short squeezes are directing price action

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By Nigam Arora


ROBYN BECK/AFP/Getty Images

Late last month, optimism was building among average investors about Aurora Cannabis’ earnings.

Even though they continued to buy Aurora Cannabis /zigman2/quotes/210559470/composite ACB +2.63%  stock in the days leading up to the company’s earnings report after the stock market closed Monday, many were surprised to see the stock fall. Bulls were expecting the stock to hit $10. But Aurora Cannabis peaked Feb. 4 at a little over $8. /zigman2/quotes/210559470/composite ACB +2.63%

Many investors are still oblivious of the froth in marijuana stocks. They continue to believe that all they have to do is buy a few stocks like Aurora Cannabis and they will become rich.

For those serious about making money in marijuana, there is a better way. It’s a tool called segmented money flows.

Since I wrote “How to potentially become a marijuana millionaire, albeit carefully” (with the most important word in the headline being “carefully”), a lot of money has been made in marijuana stocks by following money flows and ignoring earnings. That’s what we do at the Arora Report.

Read: Aurora Cannabis earnings show big growth in pot sales, but worrisome profit trend

Let’s examine current money flows with the help of a chart to help marijuana investors.

Chart

Please click here for a chart showing segmented money flows in 15 popular marijuana stocks. Please note the following:

• The market capitalization of several marijuana companies are into the billions of dollars. It is nonsensical to trade these companies based on the differences of a few million dollars in earnings or revenues, which are currently at low levels.

• The real reason behind the latest move has been short squeezes, not a change in fundamentals. I will explain short squeezes later on.

• As the chart shows, smart money flows (those of professional investors) in Aurora Cannabis are negative. Going into the earnings, smart money flows in Aurora Cannabis were mildly negative.

• Aurora Cannabis stock first fell after the earnings report, but then rebounded on another mini-short squeeze. Short sellers often buy when a stock dips to lock in profits. Their buying drives the stock up. This forces other short sellers to start buying the stock to “cover their shorts,” leading to a short squeeze.

• Marijuana stocks trade on sentiment.

• As the chart shows, momo crowd (average investors) money flows are extremely positive in Aurora Cannabis, Canopy Growth /zigman2/quotes/200603886/composite CGC +7.74% , Cronos /zigman2/quotes/206842762/composite CRON +9.12% and Tilray /zigman2/quotes/209129655/composite TLRY +0.35% . Please see “If you buy only one marijuana stock, this should be it.”

• In contrast, smart money flows are mildly negative in Aphria, Canopy Growth and Crones.

• As the chart shows, momo crowd money flows are positive in Aphria /zigman2/quotes/207425803/composite APHA +12.83% , Liberty Health /zigman2/quotes/204270480/delayed LHSIF +3.29% , MedMen /zigman2/quotes/201940908/delayed MMNFF -14.24% , Green Organic Dutchman Holdings /zigman2/quotes/204266798/delayed TGODF +10.81%   and New Age Beverages /zigman2/quotes/200595917/composite NBEV +5.31% . Please see “What to do now if you own, or want to buy, marijuana stocks.”

• Momo crowd money flows are positive in GW Pharmaceuticals /zigman2/quotes/209686240/composite GWPH +1.06% , Scotts Miracle-Gro /zigman2/quotes/200553749/composite SMG +0.34% and Constellation Brands /zigman2/quotes/207737284/composite STZ +3.47% . Smart money flows in these stocks are negative.

• Both smart money flows and momo crowd flows are positive in Corbus Pharmaceuticals Holdings /zigman2/quotes/201549545/composite CRBP +1.60% .

• Momo crowd flows are negative in Craft Brew Alliance /zigman2/quotes/209915231/composite BREW 0.00% .

/zigman2/quotes/210559470/composite
US : U.S.: NYSE
$ 2.34
+0.06 +2.63%
Volume: 56.03M
Nov. 19, 2019 6:30p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$2.41 billion
Rev. per Employee
$94,401
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/zigman2/quotes/210559470/composite
US : U.S.: NYSE
$ 2.34
+0.06 +2.63%
Volume: 56.03M
Nov. 19, 2019 6:30p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$2.41 billion
Rev. per Employee
$94,401
loading...
/zigman2/quotes/200603886/composite
US : U.S.: NYSE
$ 15.32
+1.10 +7.74%
Volume: 10.35M
Nov. 19, 2019 6:30p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$5.34 billion
Rev. per Employee
$115,039
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/zigman2/quotes/206842762/composite
US : U.S.: Nasdaq
$ 6.70
+0.56 +9.12%
Volume: 17.28M
Nov. 19, 2019 4:00p
P/E Ratio
7.63
Dividend Yield
N/A
Market Cap
$2.30 billion
Rev. per Employee
$55,248
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/zigman2/quotes/209129655/composite
US : U.S.: Nasdaq
$ 19.98
+0.07 +0.35%
Volume: 1.88M
Nov. 19, 2019 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$2.01 billion
Rev. per Employee
$62,689
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/zigman2/quotes/207425803/composite
US : U.S.: NYSE
$ 4.31
+0.49 +12.83%
Volume: 6.83M
Nov. 19, 2019 6:30p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$1.08 billion
Rev. per Employee
$147,410
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/zigman2/quotes/204270480/delayed
US : U.S.: OTC
$ 0.37
+0.01 +3.29%
Volume: 330,668
Nov. 19, 2019 3:59p
P/E Ratio
28.48
Dividend Yield
N/A
Market Cap
$127.59 million
Rev. per Employee
$71,336
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/zigman2/quotes/201940908/delayed
US : U.S.: OTC
$ 0.65
-0.11 -14.24%
Volume: 4.24M
Nov. 19, 2019 3:59p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$108.25 million
Rev. per Employee
$49,729
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/zigman2/quotes/204266798/delayed
US : U.S.: OTC
$ 0.55
+0.05 +10.81%
Volume: 1.92M
Nov. 19, 2019 3:59p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$151.32 million
Rev. per Employee
$8,428
loading...
/zigman2/quotes/200595917/composite
US : U.S.: Nasdaq
$ 2.38
+0.12 +5.31%
Volume: 1.33M
Nov. 19, 2019 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$186.58 million
Rev. per Employee
$304,998
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/zigman2/quotes/209686240/composite
US : U.S.: Nasdaq
$ 103.56
+1.09 +1.06%
Volume: 659,445
Nov. 19, 2019 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$3.18 billion
Rev. per Employee
$20,686
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/zigman2/quotes/200553749/composite
US : U.S.: NYSE
$ 102.44
+0.35 +0.34%
Volume: 474,252
Nov. 19, 2019 6:30p
P/E Ratio
12.53
Dividend Yield
2.26%
Market Cap
$5.69 billion
Rev. per Employee
$532,058
loading...
/zigman2/quotes/207737284/composite
US : U.S.: NYSE
$ 180.96
+6.07 +3.47%
Volume: 1.67M
Nov. 19, 2019 6:30p
P/E Ratio
46.92
Dividend Yield
1.66%
Market Cap
$34.26 billion
Rev. per Employee
$842,260
loading...
/zigman2/quotes/201549545/composite
US : U.S.: Nasdaq
$ 4.44
+0.07 +1.60%
Volume: 559,781
Nov. 19, 2019 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$287.15 million
Rev. per Employee
$62,627
loading...
/zigman2/quotes/209915231/composite
US : U.S.: Nasdaq
$ 16.41
0.00 0.00%
Volume: 675,312
Nov. 19, 2019 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$319.44 million
Rev. per Employee
$310,054
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