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Investor Alert

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

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 (NYS:CGC) 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 (OTC:ACRGF) . 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 (NAS:CRON) and New Age Beverages (NAS:NBEV) .

• The chart shows that momo crowd money flows are extremely positive in Curaleaf (OTC:CURLF) .

• The chart shows that momo crowd money flows are positive in MedMen (OTC:MMNFF) , Liberty Health (OTC:LHSIF) , Aphria (NYS:APHA) and Aurora Cannabis (NYS:ACB) .

• The chart shows that in Tilray (NAS:TLRY) , smart money flows are negative but momo crowd money flows are extremely positive.

• The chart shows that in marijuana ETF (PSE:MJ) , smart money flows are negative, but momo crowd money flows are positive.

• Corbus Pharmaceuticals (NAS:CRBP) is a small biotech company but is also grouped with marijuana stocks. Smart money flows are positive. This stock has come under a vicious short attack.

• In other marijuana-related stocks, smart money flows are negative in GW Pharmaceuticals (NAS:GWPH) , KushCo Holdings (OTC:KSHB) , Scotts Miracle-Gro (NYS:SMG) and Constellation Brands (NYS:STZ) .

• Smart money flows are neutral in Craft Brew Alliance (NAS:BREW) .

Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.

Rankings

The chart shows the relative rankings of the five select popular marijuana stocks. Those rankings are based on the six screens of the ZYX Change Method. Please click here to learn about the six screens.

Risk-adjusted rankings are more useful for medium- and long-term positions. Non-risk-adjusted rankings are more useful for short-term or trade-around positions.

What to do now

There are millions to be made in marijuana stocks. However, these stocks are volatile. Volatility will cause many to lose their shirts. Segmented money flows are the best tool to keep your marijuana investments prudent.

There is merit to holding core marijuana positions. Astute investors would want to make sure that their position sizes are correct. Arora’s 14th Law is directly applicable in this situation: To be successful at investing and trading, become a master of position sizing. Position sizing is critical to investing in marijuana stocks. In addition, using techniques such as trade-around positions is especially important.

Those not in marijuana stocks may consider waiting patiently for signals to buy select marijuana stocks. There is too much risk in buying these stocks at these levels. Of course, there are exceptions in buying special situations in marijuana stocks as they develop, and also for short-term trades.

Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.

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