The Turning Point

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street.

Cannabis stocks finally got back to work in the past year. You just needed to be diversified and take a broader view of what kinds of companies really belong in this space.

Once again, the pure cultivators that most people talk about suffered significantly, only coming back up for air after the presidential election lit a new fire of hope under the group.

Canopy Growth Corp. (NYSE:CGC) managed to beat the S&P 500 this year. But Tilray Corp. (NASDAQ:TLRY) and Aurora Cannabis Inc. (NYSE:ACB) fell at least 50% from their already depressed 2018 levels.

And this was the year that CannTrust Holdings (OTCMKTS:CNTTQ) lost its Nasdaq listing and skirted dangerously close to ceasing all operations. Big or small, the growers are still facing a lot of pressure.

There are simply too many growers chasing slices of the fragmented consumer market. That doesn’t mean that the market itself is in trouble.

After all, companies that serve that market in ways that don’t revolve around growing the actual plant are doing really well on Wall Street.

Think of a classic gold rush. While lucky prospectors can dig enough nuggets to pay the bills, the real wealth goes to the people who sell picks and shovels.

If your long-term cannabis portfolio doesn’t include hydroponic supply companies like GrowGeneration Corp. (NASDAQ:GRWG) and Scotts Miracle-Gro Co. (NYSE:SMG), you’ve probably had another bad year in this space.

That’s the point of thematic diversification. You need to make sure your list is big enough to include the ultimate winners of any competitive race to the finish line.

For years, everyone thought it was all about the big cultivators. Now, it’s clear that the heat is elsewhere.

The business-to-business suppliers have that heat on their side. And so do the consumer products packagers.

Green Thumb Industries Inc. (OTCMKTS:GTBIF) singlehandedly makes up for all the pain the cultivators have suffered. An all-cultivator portfolio would have missed it completely.

You’ve got to keep your eyes open. In my IPO Edge, a tiny cannabis stock has earned us 50% so far this month. I’d rather be in that company than all of Big Cannabis put together.

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