Monday UPOD Strategy: Something to Consider

upod

The broad market struggled early today as Black Friday sales underwhelmed, China released data around reduced production, and concerns continued around the recent drop in oil and energy stocks. This begs the question of whether consumer confidence is down, or are people just sick of participating in the Black Friday mayhem? Though it is Cyber Monday, there was red across the board throughout the day. The S&P 500 closed down 0.70% to 2,053.

Cannabis indices are mired in an eight month downtrend. The first day of the final month of 2014 has continued this pattern with MJIC Marijuana Index and Benzinga 420 Marijuana Index dropping by 6.63% and 2.02%, respectively.

Daily Positive: Organigram (OTCQX: OGRMF) announced approval of three more growing rooms at their facility, bringing their potential annual output to 1,000kg, or $8 million in revenue.

Daily Negative: Despite what appears to be good news, OGRMF has dropped below their IPO pricing.

In finance, there is a commonly used term, UPOD, which means Under Promise, Over Deliver. The idea is simple, tell the market conservative guidance and then deliver better-than-expected quarterly updates. Apple has historically taken this approach. However, many of the Canadian Licensed Producers are doing the opposite, which appears as an attempt to get a positive press release. Cutting off their nose to spite their face!

These Canadian LPs are stating total potential output, which assumes max production. Companies will only disappoint the market when their revenues are way off their potential output. This is just another area to watch carefully when investing. Stress test these companies so you can see what their potential is under less-than-perfect circumstances, as we know the seas are not always smooth when running a business.

 

The discussion above is provided for informational purposes only and does not constitute an offer of, or solicitation for, any investment services or products offered by the author. The author is not making any investment recommendations and the opinions above do not constitute investment advice. Reference to above indices [and companies] is based on information provided by sources the author believes to be credible. Investing in the cannabis industry, as with other industries, presents certain risks including the risk of loss on an investment.

Morgan is a Founding Partner and Managing Director of Poseidon Asset Management. He is the Chief Investor of their Cannabis Focused Fund. Morgan previously worked for a privately owned Registered Investment Adviser and earlier was at UBS Financial Services focusing on wealth management. Morgan believes in the potential of the cannabis industry and likes having an active involvement as it develops. You can follow him on Twitter @PoseidonAsset.

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