For his second Executive Decision segment of "Mad Money" Monday, Jim Cramer spoke with Darren Lampert, co-founder and CEO of GrowGeneration Corp. (GRWG) , a hydroponic supply retailer that posted a strong quarter that included a 49% jump in same-store sales. Cramer also featured the company in his opening Real Money commentary here on Tuesday.
Lampert said business is booming at GrowGeneration. When asked about competition in the space, Lampert said there are some smaller players in more established cannabis states, but GrowGeneration has a roll-up strategy to acquire a dominant position in those markets while simultaneously expanding into new states as legalization occurs.
Nearly 20% of sales stem from the largest cannabis growers, Lampert said, and the company supports more than 700 commercial growers, a number that is rising every quarter.
Let's check out the charts of this cannabis play.
In this daily bar chart of GRWG, below, we can see that prices have broken out on the upside from a large sideways consolidation pattern. Prices have shot straight up this month but the indicators are all positive. Prices are above the rising 50-day moving average line and above the rising 200-day moving average. The trading volume has been increasing all year and the On-Balance-Volume (OBV) line has soared recently with the price action. A strong OBV line tells me that buyers are very aggressive and pushing money into this name. The trend-following Moving Average Convergence Divergence (MACD) oscillator crossed above the zero line in April and is in a very bullish alignment now.
In this weekly bar chart of GRWG, below, we can see that prices traded sideways around $4 or so for more than two years. This is a long base and can support a big price advance. Prices are above the rising 40-week moving average line. Trading volume has been increasing and the OBV line is very strong. The MACD oscillator has been bullish for more than the past year and tells us that this trend has strength and can continue higher.
In this Point and Figure chart of GRWG, below, we used weekly close-only data to construct the X's and O's. The chart is projecting a potential longer-term price target around $41.
Bottom line strategy: I believe the lower 48 states will be looking aggressively for sources of revenue as the pandemic has cut revenue and increased expenses. Legalization of cannabis is one likely source of revenue so I would look for GRWG to trade higher in the months ahead. Traders looking to go long should wait for some sideways trading before probing the long side. Risk a close below $12 for now. Our Point and Figure target is $41.