Cannabis Becomes Big Post-Election Winner

Cannabis New Highs

Across the country there was cannabis ballot initiatives that voters had a chance to cast their ballots on. In every instance, the voice of the people opted to expand the use of cannabis in their state. The ballot initiatives include for both recreational use and medicinal use.

A good example of the trend in acceptance of cannabis were the declaration from states that dispensaries are an essential business during the COVID-19 pandemic. That trend now expands to other states and the earnings report from Cronos Group Inc (NASDAQ: CRON) only helped keep the bullish post-election fires burning.

You can read about the unusual option activity leading up to the election here.

Cannabis Ballot Initiatives

There were a number of states that had cannabis initiatives. Some of these states were New Jersey, Arizona, Montana, Mississippi, and South Dakota. In all of these states their pro-cannabis initiatives passed.

New Jersey, Arizona, and Montana all voted to legalize marijuana for recreational use. Kassandra Frederique, Executive Director of Drug Policy Action, discussed the initiative in New Jersey:

“Tonight, the voters did what the legislature has failed to do and approved legalization in the Garden State. This landmark victory for justice builds on nearly 20 years of drug policy reforms supported by the Drug Policy Alliance. Now it is up to political leadership and our movement to ensure that the implementation of legalization helps repair and strengthen the communities that have been most harmed by prohibition and excessive enforcement.”

I’m not sure how much increased pot use will benefit communities, but clearly part of the backing of these initiatives reducing arrests resulting from possession.

Cannabis Stocks

The bullish movement accelerated in cannabis stocks right after today’s open following earnings results from Cronos. This was a follow-up to the already significant move in these companies on Thursday.

Cannabis Stock #1: Cronos Group Inc (NASDAQ: CRON)

Cronos posted a per share loss of $0.04, beating the $0.06 expected by analysts. The company saw its net revenue increase by 90% to $9.6 million and its operating loss fall 15.1%. In its report, the CEO outlined a line of skincare products called happy dance that they’ve developed in a partnership with Kristen Bell. The company also received approval to sell Peace Naturals products in Israel.

A long-term double bottom will complete with a close above the January 21, 2020 high of $9. That confirmation would finish this pattern that began following the March low of $4.

The target is established by measuring the range of the price action from the January high to the March low. The $5 range is then added to the $9 resistance to arrive at a $14 target in the coming weeks. That level is near the 50% retracement of the downtrend from January 2019 to the March 2020 low.

Cannabis Stock #2: Canopy Growth Corp (NYSE: CGC)

Canopy will announce their 3Q earnings on November 9 before the market open. The current expected move for next week is +/- $3.74. That’s nearly a 16% move in the underlying stock price. That expected movement follows the 10% move today.

The stock price made a weekly close above resistance near $20. Taking the $10 range as the price has been bottoming since late 2019, it yields a $30 price target. That target price aligns with the 50% retracement level of the 2019 downtrend and the 261.8% Fibonacci projection level. The Fib projection is based on the seed wave movement from October 2 to October 12.

Cannabis Stock #3: Innovative Industrial Properties Inc (NYSE: IIPR)

IIPR is a cannabis REIT that pays a 3.07% dividend yield and announced their corporate earnings on November 4. The company is the only real estate company traded on the NYSE focused on the medical-use U.S. cannabis industry. They’re involved in the acquisition, ownership and management of properties leased to state-licensed operators of medical-use cannabis.

The company announced phenomenal revenue growth of 197% from the same quarter last year. Adjusted funds from operations (AFFO) is a key measure profitability of a REIT. AFFO for CRON increased 192% to $27.9 million. That amounts to an 85% AFFO payout ratio.

Following the report, the price gapped above the October 13 high on substantial volume. Following the opening gap, the price rallied significantly and closed near the high of the session. The strength faded on Friday as the price closed 2.24% lower.

This week’s breakout completed a cup and handle price pattern. The pattern began with its July 2019 high near $140. The price tested that area again in October 2020 before closing lower for three consecutive weeks. The target of the pattern is based on the $80 depth of the cup from $60 to $140. Calculating the range allows you to arrive at the $220 long-term price target.

Conclusion

The cannabis industry has been one that has had a difficult time being profitable. It’s unlikely that the 2018 parabolic movement will return following the passing of ballot initiatives. However, this week’s movement is reminiscent of times past and the stage is being set for continued strength.

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