If the Democrats sweep the upcoming election, is it time to finally buy the cannabis stocks? Not so fast, Jim Cramer cautioned viewers of his Mad Money program Tuesday night. Cannabis is not an easy place to invest.
There are only 11 states where recreational cannabis is currently legal, and 33 where it can be used for medical purposes. But at the federal level, cannabis is still illegal, Cramer noted.
Historically, betting on cannabis producers has been a losing hand. As soon as new markets open, supply increases, prices plummet and cannabis quickly becomes a commodity.
Cramer said companies such as Canopy Growth Corp. (CGC) are promising because of its potential for cannabis-infused beverages. He also liked GrowGeneration (GRWG) , which sells hydroponic supplies. Lastly, he suggested Innovative Industrial Properties (IIPR) , a REIT that specializes in medical cannabis properties and sports a 3.7% yield.
Let's check out some charts on these names.
In the daily bar chart of CGC, below, we can see that the shares have been unable to mount a sustained advance in the past 12 months. Prices are currently above the bottoming 50-day and 200-day moving average lines but that is not saying much.
Trading shows no trend toward increasing and the On-Balance-Volume (OBV) line has just followed the same path as prices. The Moving Average Convergence Divergence (MACD) oscillator has recently turned above the zero line for a buy signal but the overall pattern this year has been disappointing.
In this daily bar chart of GRWG, below, we can see that the shares have been in an uptrend. We reviewed the charts of GRWG on Sept. 4 and wrote that, "Same strategy as before: Traders looking to go long should wait for some sideways trading before probing the long side. Risk a close below $12 for now. Our updated longer-term price target is now the $59 area, up from $41."
Traders could raise sell stop protection to $14 now as the chart continues to improve.
Innovative Industrial Properties
In this daily bar chart of IIPR, below, we can see an uptrend. We have not looked at IIPR nearly two years and note that prices reached the $135 area before correcting into a March 2020 low. The shares are now back up to that $135 high from 2019. The slope of the 50-day moving average line has begun to crest and the 200-day moving average line is still positive.
The On-Balance-Volume (OBV) line has stalled out the past two months suggesting that buyers of IIPR are losing their enthusiasm for the stock. The Moving Average Convergence Divergence (MACD) oscillator has been weakening since August and is approaching the zero line. Not much trend strength here.