Tuesday Tail Licking

tail licking

Stocks take a tail licking globally, as many indices posted declines of more than 1%. Energy weakness has been a key reason for several weeks now. Today, China steps up to the plate as the problem child in the room. China changed collateral requirements for debt, basically making some 60% unable to be used as collateral. Sounds like a major liquidity concern to us and something to watch closely. U.S. equities shrugged off early weakness and actually managed to close near unchanged. The S&P 500 closed down 0.02% to 2,060.

U.S. Small and Micro caps were decently positive today despite the global weakness. Investors exhibited a home court bias, focusing on companies who generate most of their revenues stateside. However, cannabis indices failed again to gain meaningful attention. Participation has declined considerably with volumes at levels we haven’t seen in probably over two years. Price action does not exude confidence either with MJIC Marijuana Index and Benzinga 420 Marijuana Index declining by 0.5% and 2.3%, respectively.

Daily Positive: GW Pharma (NASDAQ: GWPH) continues to attempt a meaningful rally from recent weakness as shares climb back to just under $75.

Daily Negative: Several press releases out today by PINK sheet companies in the space. For example, iMD Companies declares a dividend payable next year. Yet, like most OTC PINK stocks, it hasn’t filed the recent quarter nor do they have audited financials.

It is important to understand broader markets, U.S. and abroad, and how they can potentially influence the cannabis stocks that are publicly trading. For example, Canada is a country who is fiscally reliant upon commodities, especially oil and mining. Unfortunately, the recent steep decline of energy has been a major headwind for Canadian equities and their economy. This is likely to be intimately linked with disappointing performance shown in the Canadian cannabis LPs.

Investor fear can lead to a fleeing of the marketplace. Unfortunately, if there is an influential sector that is suffering, many investors don’t take shelter in other spaces, they simply withdraw, this is often known as the “sell first ask questions later” approach. We hope to see investor confidence return, so that other industries can continue to flourish, including cannabis. The chart below shows just how challenging the market has been for small caps stock in Canada:

EWCS

 

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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