It appears that Canada may become the first country in the “first-world” division to fully legalize marijuana for adult use. With many of Canada’s top producer stocks trading on the US stock market, and with the US itself not so far behind in terms of legalization, this of course makes Canadian companies a strong prospect for investment.
Starting on October 17, 2018, Canada’s Cannabis Act will go into effect, making it legal for all adults to buy cannabis. An emerging industry, cannabis is a potentially huge market; its boom, starting with North America, possibly beginning now.
Here are a couple of companies and stocks that are focusing mainly on producing cannabis oil, a much higher margin product than dried marijuana.
OrganiGram Holdings (OGRMF)
With a market cap of 527.19 million, OrganiGram has a unique advantage over many of its competitors:
- Its centralized growing facility not only cuts production costs but allows it to produce a higher yield relative to producers with much bigger yet decentralized (spread-out) facilities.
For example, OrganiGram can produce 113,000 kilos per year from its 480,000 sq. Ft. facility. In contrast, Hydropothecary Corp can produce an estimated 108,000 kilos but from a 1.3 million sq. Ft. facility. See the difference?
- OrganiGram is also focusing its efforts toward producing cannabis oil, a much higher-margin commodity than dried cannabis.
Not only does OrganiGram’s focus and production capacity make it a formidable industry competitor, it makes the company a potentially attractive acquisition for many of the larger cannabis producers.
Let’s take a technical look at the stock:
On January 9 of this year, OrganiGram topped at a high of $4.56 (1) before proceeding to a deep correction to $2.65 in February (2).
Just three sessions later, price surged to $3.70, establishing a resistance point (3) that was retested twice, the second constituting a break above that range.
So now we have a clear support/resistance framework, the highest high at (1), support at (2), and resistance turned support at (3). How can we contextualize this price action to seek entry points?
One conservative approach would be to enter upon a breakout of (5), which essentially is the same level as (1). Of course, in addition to a favorable fundamental outlook you would also be looking for high volume at (7) and a follow through in momentum. You would also place a stop at the most recent swing low point.
Another possible long entry point would be to buy a bounce of support (former resistance) at the line designated as (3), or a bounce off the 50-day moving average (4) which may rise above the current level illustrated on the chart (as moving averages fluctuate). In this case, you would place a stop either below (3) or below the 50-day MA, wherever (4) may be at the time of entry.
A more aggressive entry would be to place a market order to buy at the top of any “local” low point, placing a stop loss at the most recent bottom of a swing low. This entry might also be favorable for swing traders who may close a position should price retest and fail at (5).
Cann Trust Holdings (CNTTF)
Similar to the OrganiGram, CannTrust also specializes in cannabis products other than its dried variety. With a $200 million market cap, CannTrust is the most competitive grower when it comes to cannabis oil revenue, as the profit margin for oils exceed those of dried cannabis.
CannTrust’s production capacity, its highest around 1 million sq. Ft., may not match the scale of some of its competitors, but its focus on cannabis oil may generate more revenue from the amount that it does produce.
Let’s take a technical look at the stock:
At (1), CannTrust peaked at a high of $10.25 on January 24, 2018. It immediately corrected, establishing its first support level (turned resistance) at (2), and a second support level at (3).
Considering the lower consecutive highs at (1) and (4), the stock appears to be in a downtrend; confirmation of such a trend would be a violation of the low at (3). On a micro-trend level, from (4) to (5), the direction is also bearish, and its continuation is predicated on a break below (2).
As for a long entry, you would look for price to bounce and stay above (2), breaking the micro downtrend line at (5). Again, a high-volume breakout would be preferable. For swing traders, two reasonable targets would be at (4) and (1). For long-term investors, such short-term targets may not hold as much validity, but expect to see some resistance around those levels.
Bear in mind that these are not trade recommendations but “contexts” that we find tradeable. The purpose of this post is strictly educational and is to be used to inform your own trading and investing decisions.
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