The Marijuana Index: Volatile Swings Hit Three Major Regional Indices

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The Marijuana Index

When you look at a marijuana index, what you’re really seeing is the general trend in the industry. As a result, the three major indices tend to look alike. The North American marijuana index, the American marijuana index, and the Canada marijuana index all tend to have a similar trajectory in aggregate. But day-to-day, they can have vastly different performances that will affect how short-term buyers may want to invest in marijuana stocks.

These indices track the top cannabis stocks in their respective regions, so it only makes sense that they would generally follow similar trend lines, with a few notable exceptions.

So far, March has been one of those exceptions. The Canada marijuana index has almost been in an inverse relationship with the other two, rising and falling in opposition to the others. And last week was a pretty tumultuous run for the indices.

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The Canada marijuana index started the week off at 795, only to plummet down to 690 before climbing back up to 758 by the end of the week and trending upward.

For a marijuana index, this isn’t exactly unheard of. After all, these are volatile times in a volatile industry, so big swings are to be expected.

Where things get really interesting, however, is in how the other two indices behaved.

Both the North American marijuana index and the American marijuana index pretty much had the exact opposite experience this week, seeing a massive uptick when the Canada marijuana index faltered, only to give all the gains back the moment Canada recovered.

The North American marijuana index went from 262 all the way up to 339 in the middle of the week, mirroring Canada’s fall, only to drop back down 262 by the week’s end.

The American marijuana index followed a similar trend, nearly doubling from 84 to 155, only to fall back to 81 by Friday.

Part of the reason for the big swings is attributed to GW Pharmaceuticals PLC- ADR’s (NASDAQ:GWPH) announcement that it had received Notices of Allowance for five new Epidiolex patent applications. (Source: “Cannabis Stock Report: Pot Stocks Skyrocket; Marijuana Index Records Worst Month Ever,” Pot Network, March 14, 2018.)

Epidiolex is the flagship cannabis-based drug from GW, and as such it sent the non-Canadian indices surging as a result, alongside the fact that the marijuana industry–particularly the Canadian marijuana industry–has been in the midst of a general correction affecting some of the most prominent marijuana stocks.

GWPH stock, meanwhile, enjoyed a modest gain of about two percent over the week. It reached a high of five percent on the back of the announcement, but then fell as the week went on.

What This Means for Marijuana Stocks

When it comes to marijuana stocks, Canada is still king.

You have several companies that dabble in cannabis and marijuana in the U.S. and abroad, sure, but for companies that are truly looking to take advantage of the budding marijuana market, Canada is where most investors are watching.

And that makes perfect sense. With federal legalization on the way, that will make Canada the first developed nation to fully legalize marijuana. Not to mention it opens the drug up to millions of people, with the potential to create billions in revenue over the next few years.

The indices measure the success of these stocks, and as such have been in a bit of a rut in 2018 so far. The correction the industry has experienced is well documented, and we’ve discussed it at length on Profit Confidential.

While some marijuana stocks have thrived despite the industry drawback, most are still in recovery mode.

National Access Cannabis Corp (CVE:NAC), for instance, is a marijuana penny stock that has remained a top cannabis stock in 2018, while others have struggled.

National Access stock has jumped by 112% over the past three months and has remained largely unaffected by the downturn.

Other stocks like Canopy Growth Corp (OTCMKTS:TWMJF, TSE:WEED) have been harder hit by the correction, but have made moves to recover.

Chart Courtesy: stockcharts.com

Canopy, for instance, announced that it was looking into a NASDAQ listing. This helped spur the company’s stock to a double-digit gain week, and also helped brighten what was otherwise a dour beginning to 2018.

To tie this back to the indices, they show that investors are more responding to Canadian pot stocks, rather than showing competition between the regions.

When things are looking down for Canada, investors still keen on marijuana stocks will naturally flock to companies outside the Great White North that have multiple plays aside from marijuana (like GW).

But at the end of the day, the top cannabis stocks are Canadian, and therefore they drive the market.

Analyst’s Take:

That the indices generally follow a similar trend line is to be expected. This is, after all, an emerging industry where we often see companies rise and fall in unison.

That doesn’t mean we don’t see outliers, of course, like National Access, which has absolutely bucked the trend of a downturn in 2018. But these exceptions are often smaller-market-cap companies. The big players tend to follow similar paths, with the degrees being the main difference maker.

But this past week showed that marijuana investors are wary of the downturn and eager to invest in non-Canadian marijuana stocks, at least for the moment. But it also showed that, when push comes to shove, the Canada marijuana index is still king and will not remain down for long.

All this to say that for bulls keen on the marijuana industry, your best bet for the highest potential gains still resides within Canadian pot stocks.