After a three-month bout of profit taking in the cannabis sector, the bottom may have finally been reached for some stocks, says analyst Javed Mirza of Canaccord Geniuty, who recommends adding exposure in the space.
Canada’s pot stocks continued their downward slide this past week, with industry leaders like Canopy Growth Corp. (TSX:WEED) and Aurora Cannabis (TSX:ACB) just about hitting new lows for 2018. The Horizons Marijuana Life Sciences ETF is down 40 per cent from its early January peak, while the Canadian Marijuana Index closed down another 2.9 per cent for the week.
But a short-term counter-trend bounce appears to be taking hold, says Mirza in a quantitative/technical overview on Wednesday. The analyst suggests adding exposure for a short-term trade idea that could turn long-term if equity markets resume their uptrends.
“From a fundamental perspective, we believe there has been little news flow to explain the magnitude of the downward move in the cannabis sector as of late and that investors could be taking profits in riskier sectors,” says the analyst.
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“Looking ahead, we believe that sector multiple expansion could resume in the near term as we await positive catalysts such as the announcement of rec purchase commitments from Ontario, additional progress towards federal legalization, and the potential for further consolidation, M&A and the entrance of strategic partners in the space,” he says.
“It’s not until the rubber hits the road in the second half of the year with the roll out of legal adult-use marijuana in Canada that we envision potential negative operational catalysts,” Mirza says.