Morning Wake and Take (Profits)

As someone who was the head of trading at three different hedge funds, I can tell you that I have been in my share of research meetings. One of these funds invested in marijuana stocks.

The meeting usually consists of the investment team. An investment team is typically made up of portfolio managers, research analysts, and traders. The portfolio managers are the bosses and decide WHAT investments the fund will make. They are supported by the analysts who assist with the research.

It is the role of the traders to decide HOW the positions are entered or exited. The traders job to is to be the ‘eyes and ears’ of the fund into the market. The traders should know what is going on in the markets. This would include things such as being aware of relevant earnings releases or news stories, learning what other funds are doing, and knowing which price levels are important.

The research meeting typically starts with the trader discussing issues are effecting the markets and the fund’s investments. One of the most important things that the portfolio managers want to know, is where are the important levels in the market. In financial markets there are certain levels that are more important than others with regards to the amount of supply and demand that exists at them.

Knowing where these levels are can help make the investing profitable. For example, suppose a stock that a fund holds is trading around $36 and the research team believes that it is worth $38. The team may want to place an order to sell the stock at $38 because they believe that is the fair value and would be happy to get that price for it.

However, the trader may know that there is a significant sell interest in the market at the $37 level. In this case the team may be wise to consider placing the sell order at $36.50 instead of $38. This is because with all of the sell interest at $37, the stock may never get to $38. All of the buy demand may be filled at $37 and then the stock could head lower. It may not trade back up to the $38 level for years.

The team would have missed out on the chance to sell and take profits. They wouldn’t have received what they believe is the fair value, but accepting a small discount is probably better than holding on to the position and watching it head south.

If I was conducting a research in which we discussed the following stocks, these are the important market levels that I would make sure that the team be aware of.

WEED is currently testing support around the $65 level. You don’t have to be a Market Guru to see that the $65 level is important. This level was resistance from January through April and the top last September. If you are considering selling this you may want to pull the trigger. If you want to buy it, it may make sense to wait.

TLRY continues to trend lower. It has fallen by about 70% since October. This company has yet to earn a profit and the action of the stock illustrates that. It is hard to believe that it was actually trading above $250 last September. Wall Street clearly doesn’t get this one. The average target price is about $97 and the average rating is a ‘hold’. It is currently trading around $45.

ACB - The levels around $14 have been resistance. It was the top early last year, in the fall, and again in April. There may be support around the $10.30 level because it was resistance in April.

APHA - I am watching the $6 level for support because it was resistance throughout December. It is also oversold so we may see a little rally.

$14 is clearly an important level for CRON. It was resistance level last September and December so there will probably be some support there now. It is oversold so it may even rally off of it.

You don’t need to be a Market Guru to see that the $4.80 is important It was clear support last April, August, and again in December. Each of those times it became very oversold and rallied off of the level. When markets get to important support or resistance levels and become oversold or overbought then tend to reverse. When markets get to important levels and consolidate, they tend to eventually break the levels and start a new trend. The key to a profitable trade is to wait for the trend line to break before entering it. You won’t get the exact bottom or top price but the risk reward dynamics are much better than just guess.

This stock has been a monster. There is resistance at the $90 level and the recent uptrend has been broken. It looks to me like it will trade sideways or head a little lower in the near-term. This is a perfect example of an ancillary business that profits of off the Cannabis industry.. Think of the Levi Strauss model. You don’t want to be a miner. You want to be the person that sells things to the miner, because win or lose, they still needs picks, shovels, and jeans.

This Cannabis Company loses money and will probably end up in the Dustbin of Wall Street history, but it may still be a good short-term investment

This Cannabis company loses money and is probably destined for the dustbin of Wall Street History, but it may be setting up for a low risk/high reward short term investment. Cannabis Sativa, Inc. (CBDS) is involved in many areas of the cannabis industry.

I chose this stock for this week’s Kronical because CBDS is definitely in a position where some lessons can be learned. Here are five things to consider:

Radar - This stock got on to my radar screen because it is in the cannabis industry and it has dropped 70% since September. Anytime that a stock falls that dramatically in such a short period of time, there is always a chance it will rebound or see a ‘dead cat bounce’.

Fundamentals - The company has been losing money for years. Last year’s loss was (.20) per share.

Technicals - The stock is oversold and at levels that were support in the past. The $2 level was support last September, and after the recent selloff it has become support again. In addition, it has been in a clear downtrend . Because it is oversold and at support, there is a significant chance that it could rebound off of these levels. If it does, it seems like the next important resistance level is around $2.70. This level was support in December.

Risk Management - We need to understand that humans have not evolved in a way that is conducive for successful trading or investing. When money is on the line it incites an emotional response. Fear of taking a loss makes investors hold on to losers for too long while fear of missing a profit causes investors to close out their winners too early. That is why you should never enter a position unless you know where you will take your stop-out loss and where you will take profits. This is the most important rule of investing!

How I would play this - Here is what I would do. The trigger to enter the trade would be the break of the downtrend line. My stop-out would be at $1.95 and my sell price is $2.65. The sell price for taking a profit is just below a level that will probably be resistance. The sell price for taking a loss is just below important support. That is because if the support breaks, the stock could trend much lower.


I am probably going to buy some shares of this Cannabis Company. Here is why.

I like this company and I am considering buying some shares.

OrganiGram Holdings (OGRMF) is a Canadian company. The company grows and sells medical marijuana and products includes different strains and oils. They are also in the vaporizer business. The reason why I think this company may have a great future is pretty simple. Unlike most cannabis companies, they actually make money!

As you are well aware, there is a frenzy occurring in the legal cannabis markets. You can’t turn on the news or surf the Web without coming across numerous stories about the industry. But it is important to understand that most of the cannabis companies are losing money and have no realistic future prospects.

Consider all of the companies that are trading for literally fractions of a penny. Most of these companies will eventually become unable to raise money to run their businesses and will be bankrupt. Even well known companies like Tilray and General Cannabis are losing money.

This type of phenomenon is not new. It has occurred many times throughout history when an innovative new industry is formed. For example, when cars were invented there were soon over 300 companies that produced them. Eventually there were three. The same type of consolidation happened in the internet boom.

OrganiGram’s profit trend is headed in the right direction. In 2014 the company lost (.52) per share and in 2015 it lost (.02) per share. 2016 was a break-even year and in 2017 the loss was (.11) per share. Last year, Organigram became profitable and reported earnings of .17 per share. Analysts estimate that they will earn even more than that this year.

Another reason why I like this company’s potential because 11 analysts at the Wall Street Banks follow it, and the average price target is $11.65.

To learn more about OrganiGram and other things happening in the Cannabis markets please check out this weeks Kronical.


THE KRONICAL - APRIL 29, 2019


If you follow AMZN you should read this…

I have a deep interest in investment psychology and market sentiment so I thought that this article that was on marketwatch.com yesterday is extremely interesting. As someone who has been in the institutional investment industry for more than 20 years, I’ve been around the block more times than I care to remember and I don’t recall seeing anything like this since the technology bubble back in the 1990s.

According to the article, there are 45 analysts at Wall Street brokerage firms who research and analyze Amazon. Every single one of them has a ‘buy’ recommendation on it. I find this to be incredible. Now it’s important to remember that Wall Street firms do not like to make companies look bad. Suppose a company needs the services of a brokerage firm. It is unlikely that they would go to one that is recommending to its clients to sell the stock so there is an inherent bias in ‘sell’ and ‘buy’ recommendations, but this example with AMZN is ridiculous.

Now I see that Russell Wilson, the quarterback of the Seattle Seahawks, has given AMZN stock as a gift to some other players on the team. If this isn’t a sign of excessive Bullishness then I don’t know what it. This kind of reminds me of how celebrities were endorsing cryptocurrencies last year. Remember when people such as Paris Hilton and Ashton Kutcher were getting on the Crypto bandwagon? I think it is safe to say that their investments probably didn’t work out so well.

It is important to understand sentiment. If you do you can gain valuable insight into the dynamics of market tops or bottoms. Think about this. Suppose there are a total of 100 investors in the entire world and everyone of them is bullish on company XYZ. That means every one of these 100 investors has invested all of their available funds XYZ stock. Now there are no more buyers! This means that the price of the stock will not go any higher.

Remember, investors only buy for stocks for one reason and that is because they believe they will go higher. This decision to buy is a choice. Nobody needs to buy a stock. On the other hand, sometimes investors need to raise cash so they are forced to sell. It is not a choice. They may need money for things like college tuitions, mortgages, or bailing their delinquent kid out of jail. So it is inevitable that some of these 100 investors will eventually be selling.

Because all of the buyers have full positions there is no one left to buy this stock. This means that this selling will cause the price to fall. Obviously, this is an extremely simplified example but it illustrates an important dynamic. Markets form tops and go lower because they have run out of buyers. Markets form bottoms and go higher because they have run out of sellers.

I am not suggesting that AMZN is about to head lower, but if I had a position in it I would certainly pay attention to these sentiment dynamics.

What do the Post Office, the Atlanta Hawks, and these Cannabis companies have in common?

What do the US Post Office, the Atlanta Hawks, and these Cannabis companies have in common?

You may find it surprising, but the US Post Office, the Atlanta Hawks, and these Cannabis companies all have something in common. At first glance, you may think they have nothing to do with each other. After-all, the Post Office is run by the Government, the Atlanta Hawks are a professional basketball team, and Cannabis companies were established to profit off of the booming legal cannabis industry.

But unfortunately, these very different organizations do in fact have something in common. And it just so happens that it is a very important thing. They are all losing money! None of them have made a profit in years!

Obviously, the Post Office can continue to lose money forever because it’s run by the Governmental and the Government can just raise taxes. And a professional sports team can continue to lose money as long as the owners are willing to sustain the losses.

But let’s talk about the cannabis companies In the stock market, the idea is to invest in companies that are, or will be, profitable. This profitability will in turn lead to the share price appreciating. Financial theory, history, and common sense all tell us that if a company doesn’t make money it will eventually go out of business. Obviously, this will lead declining share prices and losses for investors.

If you trade or invest in the Cannabis markets, you are probably familiar with the following companies. They may have cool products and be in a cool industry, but if you are considering investing in them it is important to understand that they are losing money. You may ask yourself ‘how have they been able to lose money for a sustained period of time?’ The answer is that they borrow money or issue stock and use these proceeds to cover their expenses. But eventually the ability to do so will stop if they are never able to turn a profit.

Now I am not saying that these companies will never earn money and that you can’t profit by investing in their stocks. Some of them may eventually become great investments. My intent here is to express my belief that before making an investment in a company, one should consider if it is actually making money and what the future prospects of profitability are. In the long run these dynamics will ultimately have a significant effect on the share price.

Axim Biotechnologies makes a really cool product. They are a biotechnology company based in New York City. They make chewing gum that is infused with some type of cannabinoids. This is used to treat pain, anxiety, and other conditions. It can even be used to treat Opioid addiction, which we all know is a terrible epidemic. I am not really sure how they do it because I’m a stock market guy, not a scientist, but I think it sounds like an awesome idea.

But let’s take a look at some numbers. Last year AXIM lost (.12) per share. That means that for the year the company lost about $6.7 million. Unfortunately, losing money is nothing new to this company. In 2017 they lost $4.2 million, in 2016 the loss was $7.3 million, and it 2015 it was just over $10 million.

Not surprisingly, the stock has not acted well. It is currently trading around the $1.50 level. As you can see on the chart, over the past year it has lost about 70% of its value. Maybe someday one of the company's product will be a huge success and it will become profitable, but over the past few years it has certainly been a disappointment to shareholders.

Americann, Inc. is next on the list. Like many other Cannabis companies they are based in Denver. This company develops medical cannabis cultivation and processing properties. In other words, they build greenhouses. The greenhouses they build aren’t like the kind my grandfather had in his garden. These are bigtime greenhouses that are used for largescale industrial growing. They have built and developed over one million square feet of growing area.

Americann has been involved with some enormous projects. Some of the projects include the Denver Medical Cannabis Center, the Massachusetts Medical Cannabis Center, and the Illinois Medical Cannabis Center. The company is also committed to sustainability and uses clean energy from solar and geothermal sources.

Apparently, the Cannabis greenhouse business isn’t very profitable - at least in the way that Americann does it. Last year they lost $4.4 million. This equates to a loss of (.22) per share. This is more than they lost in the prior few years. In 2017 the loss was $2.7 million, in 2016 it was $2.2 million, and in 2015 the loss was $1.7 million. Maybe one day the company will be profitable but as for now they seem to be headed in the wrong direction.

General Cannabis Corp. is a holding company that is based in Denver. They have four different segments - security, operations, consumer goods, and investments.

The security segment provides different types of services to cannabis growers and retails stores. These services include video surveillance, transporting cash, and providing security professionals. The operations segment offers consulting services to the cannabis industry that include obtaining licenses, compliance, logistics, retail operations, and facility services. The consumer goods segment includes developing relationships with apparel retailers and distributers. The investments segment provides loans and financing to companies within the cannabis industry.

General cannabis is clearly an organization that is involved in many things. Maybe it is involved in too many things. Have you ever heard the expression ‘jack of all trades and master of none?’ It could apply here. This company hasn’t earned any money in years. Last year it lost almost $17 million, or (.49) per share. The prior years losses were less than half of that. In 2017 the loss was just over $8 million. In 2016 General cannabis lost just over $10 million and in 2015 the loss was almost $9 million. In case you’re keeping track, this company has lost a total of $44 million in the past four years.

Cannabis Sativa, Inc. is next up on the list of losers. After looking that the company website for awhile, I couldn’t even figure out just what they actually do. I think it has something to do with providing services to cannabis dispensaries. Here is the description from marketwatch.com. “Cannabis Sativa, Inc. engages in the research, development, acquisition and licensing of specialized natural cannabis related products, including cannabis formulas, edibles, topicals, strains, recipes and delivery systems. The company was founded on November 5, 2005 and is headquartered in Mesquite, NV.”

This company seems very mysterious to me. According to marketwatch.com, there is only one employee despite having revenues that were over $500 million. One of the things that I noticed when I was looking at the financials is that the Quick Ratio is only .25 while the average Quick Ratio for the industry is 2.67.

The Quick Ratio is the company’s cash and short-term securities divided by the current liabilities. Current typically means one year or less. In other words, Cannabis Sativa only has 25 cents for each dollar of debt that they have, while the industry average is to have $2.61 for each $1 of debt. With a ratio like that, it isn't surprising that they are losing money.

The losses were $4.1 million in 2018, $7.6 million in 2017, $3.1 million in 2016, and $9.4 million in 2015.

Tilray Inc. hasn't been a publicly traded company for that long. The initial public offering was last summer. The company has the distinction of being the first publicly traded cannabis company to list on the NASDAQ. Their business model is very understandable. They engage in research, cultivation, production, and distribution of cannabis and cannabinoids. Products include dried cannabis and cannabis extracts. In other words, they grow and sell weed.

Like the others, this company is losing money as well. I have heard that the cannabis markets are glutted and that the price of cannabis has fallen dramatically since its legalization. Many cannabis farmers are losing a lot of money. Maybe that is why Tilray is losing money as well.

Tilray went public last year, but they have disclosed financial information going back further. If you think about it, it is kind of amazing that a company that loses money could go public. This was a common occurrence back in the dot.com era. The company has a market capitalization of around $5 billion despite the fact that they lost $67 million last year. In 2017 they lost about $8 million and had a similar size loss in 2016.

22nd Century Group, Inc. is based in Clarence, New York. It is a biotech company. They research and develop technologies that will allow the increase or decrease of the levels of nicotine and nicotinic alkaloids in tobacco plants and the levels of cannabinoids in cannabis plants (my guess is that there will be a greater demand for increasing than decreasing). This is done through genetic engineering and plant breeding. Sounds like pretty neat stuff.

But don’t let their cool name and cool stock symbol fool you. They are losing money. Last year the loss was $10.4 million. That is a loss of (.08) per share. In 2017 the annual loss was close to $17 million. The loss in 2016 was just over $15 million and the loss in 2015 was just over $14 million. Maybe this company will turn around one day and become successful, but the current shareholders must be disappointed. The valuation has fallen by about one third since December as the price per share has fallen from $3 to $2, despite the fact that the broader equity markets have been booming since then.

The Supreme Cannabis Co, Inc. is last on the list. Obviously, there are many other cannabis companies that are losing money out there, but today I just wanted to focus on these seven because they seem to be popular recently. Supreme has a similar business model as Tilray. The company grows and sells cannabis, although the product may be a little different because they say it is '“sun-grown”. I suppose this is in contrast to being grown with artificial light. Supreme does this through their wholly owned subsidiary 7ACRES.

Perhaps The Supreme Cannabis Company should consider changing their name to ‘The Subprime Cannabis Company’ because it is losing money and has seen the price of it’s stock fall by about 20% since September. Last year the company lost around $7.3 million. The loss in 2017 was more than twice that at $15.3 million. The loss in 2016 was $4.4 million and the loss in 2015 was about $5.7 million. Maybe the future will be better, but my guess is that The Supreme Cannabis Company’s shareholders are supremely disappointed.