Cannabis stocks have seen strong gains this week. Is it finally time to start buying after seven months of declines? On his Mad Money program Thursday night, Jim Cramer said he's not too sure.
Everyone expected a lot from the cannabis industry, Cramer admitted, but after being legal in Canada for a year, the opportunity proved to be a lot smaller than many believed. It turns out, people are only willing to pay high prices when cannabis is illegal. Once it's legal and freely available, prices plummet.
When Cronos Group Inc. (CRON) last reported earnings, the results were ugly. The company missed on revenue, missed on earnings and saw prices fall 42% in just three months time. The same pattern was seen at Tilray Inc. (TLRY) and Canopy Growth Corp. (CGC) .
Cramer said with so much oversupply, smaller market opportunities and no movement on U.S. deregulation, the cannabis stocks just simply aren't as attractive as they used to be. That's why he'd use any strength to sell.
Let's see what the weekly charts of these three companies look like.
In this weekly bar chart of CRON, below, we can see the past three years of price action. Because Jim Cramer recommends selling this and the other two companies on any strength the bigger picture is really needed. CRON is trading well below the declining 40-week moving average line. Prices have been retesting the $6 support area from 2018. A break of this support could mean a deeper decline to the $2 area. With the prospect of a still deeper decline a possibility selling on available strength seems like a good idea.
In this weekly bar chart of TLRY, below, we used a "log" scale to construct the chart. Prices are below the declining 40-week moving average line and flirting with new all-time lows - not a good combination. Here too a sell on available strength seems like a way to end the pain.
In this last chart of CGC, below, we can see just a little bit of potential chart support around $15 but the next level of the chart is down in the $10-$5 area. Too big of a drop for fighting the trend.