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Investment Opportunities

This Sugar Rush – and Crash – Is Sending a Buy Signal

We’re all aware of what a “sugar rush” is.

Almost everyone loves sweets. And it’s a dietary staple for children.

I mean, Halloween wasn’t that long ago. And Thanksgiving and Christmas offer their own bevy of sweet treats.

Not to mention the boxed-chocolate perennial Valentine’s Day is on the horizon… followed by Easter’s basketfuls of jelly beans and marshmallow Peeps.

You’ve got to admit, our calendars are full of days marked by the jittery, manic high from a huge intake of refined sugar.

But after every sugar rush, we face the devastating crash on the back side – when the high fades and your energy plummets to a near-comatose level.

Markets are just as susceptible to sugar rushes as people are. At their core, markets are driven by individuals ingesting the hype of the day.
You know when these moments happen.

Think about the term “blockchain” right now. (Did your pulse go up just reading that word?)

A company mentions blockchain or adds it to its name… and shares explode.

Blockchain technology itself is transformative. But the market moves have felt exceptionally manic – a sugar rush.

No industry is immune to these moves, regardless of how speculative it is… or isn’t.

The Rush Before…

We saw a sugar rush in what I believe is the sector to watch this year – the legal cannabis market.

California greenlighted recreational “green” sales to kick off 2018.

Investors were blitzed.

And shares of pot stocks roared higher.

The North American Marijuana Index shot up nearly 40% from December 29 to January 9.

That’s nearly half of last year’s total gains in just over a week.

Let me show you what I mean… In the 2016 election, California voters made recreational pot sales legal, beginning in 2018.

For the first half of 2017, the North American Marijuana Index was down. But it rallied to finish out the year with an 86% gain.

Most of that came in the fourth quarter, with Canada’s ongoing momentum toward legalizing recreational use countrywide, a growing international market and California recreational sales going live.

There were already budding opportunities in this nascent, global commodity market. And it was just starting to pick up steam.

But once investors saw the California headlines and the long lines outside dispensaries, it triggered a sugar rush. That’s why we got that 40% gain in the index in a matter of days.

… The Crash

However, since hitting their high, pot stocks have suffered the inevitable…

They’ve been crashing…


The North American Marijuana Index – which is made up of 39 cannabis companies from the U.S. and Canada – tumbled 19% from the morning of January 9 to the close on January 12.

It was four brutal days. And everybody started freaking out.

Now, this is where it’s key to understand the index’s composition.

In the North American Marijuana Index, there are 24 Canadian cannabis companies with a combined market cap of $27.8 billion. In comparison, there are 15 U.S. marijuana companies with a combined market cap of only $6 billion.

It was the Canadian companies that led the rally… and the flameout. And that part of the index is four times the size of its U.S. counterpart in terms of value.

The U.S. market is state by state. The Canadian market is not only national but international.

So even though it was California legalizing recreational use of cannabis that sparked the pot stock rally to begin the year, the U.S. portion of the North American Marijuana Index gained only 11% from December 29 to January 9.

Over that same span, Canadian marijuana stocks skyrocketed 56%

But during the sell-off witnessed last week, the U.S. marijuana companies slipped just 5%. But the Canadian ones plummeted 27%.

That means the brunt of the gains – and losses – investors have experienced with marijuana stocks this year came from Canada.

Investors bought everything cannabis related in a sugar rush frenzy. They started taking profits – and we saw the inevitable crash.

But here’s the deal… the Canadian portion of the index rebounded on Monday (the country’s markets weren’t closed for Martin Luther King Jr. Day) as favorable news from companies started trickling in. And the U.S. portion followed suit yesterday.

The sugar rush – and crash – to start the year seems to be out of the system.

The global cannabis market could be worth more than $63 billion in a handful of years. Right now, investors have an opportunity to pick up shares of companies with a great future ahead of them, at a value from where they began 2018.

Good investing,

Matthew

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official position of Wall Street analysts.


About

Matthew’s expertise ranges from classic industries such as oil and mining to cutting-edge markets like small cap tech, cannabis, 3D printing and cloud computing. With almost two decades of financial experience under his belt, Matthew’s knack for finding market trends never fails to surprise us, which is why we keep a close eye on his free e-letter, Profit Trends.

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