Marijuana News Today: How the U.S.-China Trade War Impacts Pot Stocks

Marijuana News Today: How the U.S.-China Trade War Impacts Pot Stocks
iStock.com/Dilok Klaisataporn

Marijuana News Today

The marijuana news today has us covering what is perhaps the biggest overall economic story of the year—the worsening trade war between China and the U.S.—and how it impacts the marijuana sector more specifically.

Overall, the stock market is down in recent months. The Dow Jones Industrial Average (INDEX:DJI) has fallen significantly since the beginning of August, when China and the U.S. first began to engage seriously in a long-threatened trade war. This is something that President Donald Trump always implied was in the works, but it took about three years into his presidency before he got around to waging a full-scale trade war with the Chinese.

Right now, tariffs are being tacked on to all sorts of goods produced in China, making investors overall rather squeamish about the future. After all, with tariffs comes increased prices and often reduced profits, leading to cutbacks across the board. It’s not often that trade wars benefit businesses, at least certainly not in the short-term.

Now, we’re not here to discuss the validity or necessity of these trade wars (there are more than enough articles doing that, making argument both for and against going to bat against China), but more importantly for us, let’s examine how these tariffs will impact the marijuana trade.

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As you’d expect, marijuana companies make use of Chinese manufacturing costs, just like the vast majority of other businesses in the U.S. Packaging and other services of that nature are often handled by the Chinese for a variety of companies, and the increased tariffs are likely to impact most companies’ overheads. (Source: “Marijuana and Trade War: Will Democrats’ Agenda Intensify?Market Realist, August 26, 2019.)

Now, to be fair, the marijuana industry isn’t as beholden to Chinese manufacturing as a good number of other companies (regulations often force companies to do a good bit of packaging within the country), but still, having costs ramp up for Chinese goods and services is going to impact marijuana stocks’ bottom lines.

But more importantly, the trade war is bad for business for one key reason: the overall market sentiment.

With concerns of a looming recession growing on top of short-term stock market prospects being battered by the trade war, we have a marijuana industry that is as vulnerable as it’s ever been.

One thing about pot stocks is that, while they have long behaved with an increased level of volatility, they have always bounced back from falls with higher gains—but they have never encountered a true recession. In fact, marijuana stocks have benefited from going legal during one of the longest periods of sustained recovery in the history of the U.S. In other words, will a recession be destructive for pot stocks?

In my mind, a recession may lead to sustained reductions in value, but overall, the marijuana industry is simply too full of potential to be truly at risk of a permanent downturn. These stocks will rise again, especially as the industry continues to grow across the world. Will a recession and/or trade war put a hamper on growth? Absolutely. But the long-term outlook is still very positive from my perspective. It will just entail a bit of patience on the investor side.

Also worth mentioning is that U.S. marijuana legalization, recession or no, could be a massive boon to pot stocks that would help mitigate an overall economic shrink, making pot stocks still a very potent long-term buy.

TLRY Stock

The marijuana news today is a bit of a mixed bag on the pot stock market, with many stocks breaking even to start the week while others are seeing bigger movements.

Tilray Inc (NASDAQ:TLRY) is one of the companies that is seeing a fair bit of movement.

TLRY stock jumped about a point in early morning trading, but over the past five days has fallen over four percent.

Tilray stock, I maintain, is going to keep at around a $30.00 price point for the near future. Investors seem to comfortable with the company at that level and will continue to invest in it when it falls below that number—or divest when it climbs too high.

Now, that number could easily change should a full-on economic downturn take place. But for now, I think investors can be pretty confident that Tilray Inc will hold around that value.

That means that slight gains are likely in the offing for Tilray moving forward, but that is really only of interest for the day traders. For long-term investors, I’d hold TLRY stock for a bit longer, as I believe that the company could easily regain its $40.00 value in the future. The when is the more pertinent question, as it likely won’t be in 2019 with the current economic outlook.

As for those looking to short Tilray Inc, doing so when it crests $30.00 is not a bad option in the short-term.

APHA Stock

Another company that is seeing bigger moves today is Aphria Inc (NYSE:APHA).

APHA stock fell four percent in early morning trading, but is one of the few companies to have seen gains over the past five days. Aphria stock jumped one percent last week.

Aphria is still trying to calibrate after the wild ride it embarked on earlier this summer, when it became the first major pot stock to show profits.

That announcement sent shares soaring dramatically, only to have them collapse down just as quick. Since then, APHA stock has been on a roller coaster and become one of the harder marijuana stocks to predict.

As of now, I’m not overly bullish on APHA stock, but neither am I bearish. At this moment, APHA stock is too volatile to predict and I would only recommend those looking for a riskier investment to seek out Aphria Inc.

The company could see huge gains or falls in the near- and long-term. Again, this is one of the harder pot stocks to chart at the moment and I’d advise those looking for a safer pot stock to pick to steer clear.

TLRY and APHA Stock Performances

The performances of TLRY stock (black line) and APHA stock (blue line) over the past week are seen on the chart below:

Chart courtesy of StockCharts.com

Analyst Take

The marijuana news today is about as successful as one could hope, given the circumstances.

It’s not a great time on the stock market, and marijuana stocks are feeling that as hard as any other industry.

Right now, the trade war and possible recession are causing investors to seek out haven investments—investments that are safer and less volatile. The marijuana industry, unfortunately, does not qualify as either.

With that in mind, this is only a passing thing, and I am still very bullish on the overall strength of the marijuana market long-term.

For those that can afford to, sitting and waiting for brighter days ahead is the best move.