January Effect: Public Cannabis Stocks Edition

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January Effect: Public Cannabis Stocks Edition

It’s getting to be that time of year again when investors start engaging in tax-loss selling to help offset realized capital gains, important during a year when the S&P 500 is up +24%. But which losers do you sell when seemingly most investments have worked year-to-date? Public marijuana stocks certainly fit the bill, having had a tough 2019 across the board. With large retail investor ownership, some of that shareholder base may sell those names by year’s end to minimize their tax bills next year.

On the flip side, this selling pressure on public marijuana stocks could also present a buying opportunity to take advantage of the “January Effect”. That’s the heavily researched market anomaly that finds beaten up stocks – particularly small caps – often rebound in January as tax loss selling subsides and normal trading returns.

Therefore, we aggregated the top ten public marijuana or CBD related stocks either by market cap or those with the largest weightings in major marijuana ETFs, such as ETFMG Alternative Harvest ETF (MJ) and The Cannabis ETF (THCX). We then calculated their YTD returns and performance since their 52-week highs. Here are the results as of today’s close:

  • Canopy Growth (Canadian marijuana grower): -31% YTD, -65% since 52-week high
  • Cronos Group (Canadian marijuana grower): -36% YTD, -74% since 52-week high
  • Tilray (Canadian marijuana producer): -74% YTD, -83% since 52-week high
  • Aurora Cannabis (Canadian marijuana producer): -51% YTD, -76% since 52-week high
  • Aphria (Canadian marijuana producer): -18% YTD, -57% since 52-week high
  • HEXO Corp (Canadian marijuana producer): -40% YTD, -75% since 52-week high
  • OrganiGram (Canadian marijuana producer); -27% YTD, -69% since 52-week high
  • GW Pharmaceuticals (Develops cannabinoid-based medicine): +6% YTD, -47% since 52-week high
  • MediPharm Labs (Canadian cannabis extraction service): +110% YTD, -53% since 52-week high
  • Charlotte’s Web (Sells CBD products): -21% YTD, -65% since 52-week high

Bottom line: most major public cannabis or CBD stocks are down by double digits YTD and have fallen by +50% since their 52-week highs. As tax loss selling hits its stride over the next couple of weeks, it should put even more downward pressure on these names. Come January as this selling abates, they could get a lift from the January Effect for those looking to play this seasonal anomaly. Even with the poor performance of marijuana stocks this year, the legal marijuana industry still receives a lot of attention for its long-term growth prospects, especially among retail investors who may want to jump back in.

To be clear, we don’t make stock recommendations and investing in public marijuana names is a risky endeavor as this year’s trading activity has shown. Nevertheless, it’s some food for thought for those who can stomach this strategy over the next few weeks. For those not interested, it’s still worth keeping an eye on. As much as the marijuana market is a disruptive growth industry, not recovering some losses in January would give an important warning signal for how public cannabis stocks will fare in 2020.