Yes, This Is the Cannabis Correction

Hilary Kramer

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

If you’re new around here, it might look a little like the end of the world. Don’t panic.

Hundreds of “hot” stocks took a big step back this week. The pain is nearly universal among the cannabis-related names on my screen.

Only one of the tiniest fought its way to the upside. I’ll tell you more about it later.

This Is the Cannabis Correction: Canopy Growth

For now, I simply want to linger on the carnage as a teachable moment. The biggest stock in the industry, Canopy Growth Corp. (NASDAQ:CGC), was one of the hardest hit, lurching 14% lower.

Its up-and-coming chief competitor, Tilray Inc. (NASDAQ:TLRY), plunged 16%. Neither giants nor niche favorites were spared.

All in all, the dozen cannabis stocks I track in my proprietary index took an 11% fall. That’s a bona fide correction playing out in real time, only a little slower than the infamous “flash crash.”

This Is the Cannabis Correction When Stocks Return to Realistic Levels

But, by definition, a correction happens when stocks that have gotten ahead of themselves retrace their steps until they hit more sustainable and realistic levels. They aren’t crashing. They’re literally correcting course.

And long-term investors accept a few course corrections as part of the natural give and take of life on Wall Street. When stocks go up a lot, they can come down a little and no sensible person complains.

That’s exactly what’s happening here. Those dozen stocks I track may be down 11% this week, but they’re still up 77% in the aggregate year to date (YTD).

This Is the Cannabis Correction: Dropping 11% in a Week

In that context, giving up 11% on what was once a huge return isn’t so terrible, especially when you consider that we’re only two months into the year and these stocks still have a lot of room to run.

After all, there’s no bad news circulating around cannabis. All the indicators still point to enlarged markets and looser regulations ahead.

Wall Street agrees. Price targets on these companies are actually rising. So, don’t blame cannabis. It’s just the market tides circulating.

This Is the Cannabis Correction, Except for a Tiny Stock Recommended in IPO Edge

But what about that tiny cannabis-linked stock that still is rallying through the storm? It isn’t even listed on a major exchange. You’ll have to squint to see it.

Those who have been able to locate a few shares are cheering. Dollar for dollar, when a tiny stock triples in price in a matter of months, it feels just as good as it does when a Silicon Valley stock leaps from $300 billion to $1 trillion.

If anything, it’s more likely for little stocks to stretch than it is for a giant like Apple Corp. (NASDAQ:AAPL) or Inc. (NASDAQ:AMZN) to triple at this stage.a

What is the stock? Only my IPO Edge subscribers can answer that question.

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