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April 26, 2019, 1:17 p.m. EDT

The ‘smart’ money is telling Canopy Growth investors to be careful

Acquiring the rights to buy Acreage Holdings was a clever deal — but the eventual outcome is uncertain

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By Nigam Arora


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There is more optimism in marijuana stocks after an ingenious deal was revealed. (I will explain that later.)

After I wrote “How to potentially become a marijuana millionaire, albeit carefully,” a lot of money has been made in marijuana stocks by following segmented money flows. At The Arora Report, we use that method, which provides X-rays of marijuana stocks. Let’s examine the latest money flows in marijuana stocks after this ingenious deal.

Chart

Please click here for a chart showing segmented money flows in 17 popular marijuana stocks. Please note the following:

• At the federal level, marijuana is illegal in the U.S. Companies that touch the marijuana plant have difficulty listing their stocks on a major U.S. exchange, so many list their shares in Canada.

• Canopy Growth /zigman2/quotes/200603886/composite CGC +7.74% is a Canadian company that’s listed in the United States. Canopy Growth was looking for a way to maintain its stock listing in the United States but at the same time participate in the growth of marijuana in the United States. Canopy came up with an ingenious way to acquire the rights to buy Acreage Holdings /zigman2/quotes/205165963/delayed ACRGF -5.45% . Acreage Holdings is a multi-state marijuana operator in the United States.

Read: Canopy Growth’s co-CEO on the pot company’s ambitions

• Due to this arrangement, Canopy Growth can keep its stock listed in the United States and participate in the growth of marijuana in the United States at the same time.

• This is like having your cake and eating it too.

• The deal has generated a new wave of optimism. In our analysis at The Arora Report, if this deal had not happened, marijuana stocks would have likely fallen 20% to 30%.

• Now let’s do an X-ray of Canopy Growth with segmented money flows. Smart money flows are neutral. Momo crowd money flows are positive. (Momo = momentum.) Short squeeze money flows are very positive.

• Before drawing a conclusion on Canopy Growth, let’s do an X-ray of Acreage Holdings. Both smart money and momo crowd flows are negative.

• The sum total of the two foregoing points is that the rise in Canopy Growth stock is being driven by the momo crowd and a short squeeze, but the smart money is cautious. One reason may be that the smart money bought Canopy Growth at lower levels and perceives high risk in buying it at this level.

• Note that the smart money is not selling Canopy Growth into the strength at this time.

• The chart shows that short squeeze flows are extremely positive in Cronos /zigman2/quotes/206842762/composite CRON +9.12% and New Age Beverages /zigman2/quotes/200595917/composite NBEV +5.31% .

/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
$4.96 billion
Rev. per Employee
$115,039
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/zigman2/quotes/205165963/delayed
US : U.S.: OTC
$ 4.16
-0.24 -5.45%
Volume: 501,662
Nov. 19, 2019 3:59p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$2.96 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/206842762/composite
US : U.S.: Nasdaq
$ 6.70
+0.56 +9.12%
Volume: 17.27M
Nov. 19, 2019 4:00p
P/E Ratio
7.63
Dividend Yield
N/A
Market Cap
$2.11 billion
Rev. per Employee
$55,248
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
$177.17 million
Rev. per Employee
$304,998
loading...
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