California Marijuana Stocks: A New Era and a New Economy
The world is changing, and at a staggering pace. Things that seemed impossible only years before are quickly becoming a reality. I am having a hard time believing that we have come so far in just a few short years. For example, now when someone asks a question like “Is weed legal in California for recreational use?” the query isn’t met with distaste or stigma.
In fact, the topic of legal marijuana is being embraced because a new economy is expected to flourish in California come January 1, 2018, and investors are clamoring into this sector in hopes of capitalizing on it.
Is Weed Legal in California for Recreational Use?
Whether recreational marijuana is legal in the State of California is not a straightforward issue, so let me explain.
On November 8, 2016, Proposition 64 was passed at the state level in California, which legalized the use of recreational marijuana for adults over the age of 21. These adults will be legally allowed to possess up to one ounce of marijuana, and grow up to six plants for personal use.
This statute is going into effect in the new year and, along with it, the birth of the legal recreational marijuana market in the State of California.
A problem still stands that marijuana is still classified as a Schedule 1 drug at the federal level. Other Schedule 1 drugs include heroin and cocaine, and offences involving these drugs carry hefty criminal charges. What is classified as legal in California does not apply to other states, or at the federal level.
To make a long story short, recreational marijuana is going to be legal at the state level in California. Businesses will be allowed operate in this segment, and the state government will take its share in taxes.
Demand for cannabis in the state is expected to be high, which will translate into a booming industry for California marijuana sales. Some people may want to get directly involved in the industry, while others are more inclined to simply invest in California marijuana stocks.
How to Profit from California Marijuana Stocks
As a technical analyst, I like to focus on investments that have compelling stock charts. Finding compelling marijuana stocks based out of California has been a daunting task, given that many—if not all—are penny stocks (for now). Penny stocks carry a significant amount of risk, and many investors shy away from them for this reason.
I have done my best to narrow things down to three stocks that I believe will benefit from the recreational marijuana market at the state level. I chose these ones specifically because their stock charts are compelling and intriguing. Two of them are highly speculative penny stocks, and one is a blue chip.
The companies include Scotts Miracle-Gro Co (NYSE:SMG), Terra Tech Corp (OTCMKTS:TRTC), and Maple Leaf Green World Inc (OTCMKTS:MGWFF, CVE:MGW).
Let’s begin with the blue chip stock, because it is the least volatile.
1. Scotts Miracle-Gro Co
Scotts Miracle-Gro Co is a marketer and manufacturer of lawn and garden care products. For those who want to cultivate marijuana, there is a good chance that they will be using Scotts Miracle-Gro products to do so. Let’s not forget that this investment also pays a two percent dividend.
The following SMG stock chart illustrates the reason why I find this investment compelling and intriguing.
Chart courtesy of StockCharts.com
This stock chart illustrates a pristine bullish trend that contains the quintessential characteristic defining all bullish trends: a series of higher highs and higher lows.
I used a simple uptrend line to capture this bullish trend, and It was created by connecting the series of higher lows. This uptrend line is the dividing line that distinguishes the merits of this investment and, as long as SMG stock is trading above this line, I can only assume that a bull market is still in development and that higher stock prices are on the horizon
SMG stock is forging new all-time highs, and it is moving in lockstep with the equity markets. So, as the markets appreciate, SMG stock will follow suit.
2. Terra Tech Corp
Terra Tech Corp is a vertically integrated company that cultivates, services, and sells cannabis and cannabis-related products in Nevada and California. It is not difficult to fathom the positive effect that the recreational market will have on their bottom line.
The following TRTC stock chart illustrates the indications that I am currently watching, which will act as a catalyst that will suggest that a bullish move is in the making.
Chart courtesy of StockCharts.com
This stock chart illustrates that a simple downtrend line has been acting as a very influential level of price resistance. This resistance level has been tested numerous times, and every attempt to move beyond it has been met with selling pressure that has caused a subsequent sell-off.
I am intrigued by this stock chart because a move beyond this downtrend line would suggest that higher stock prices are on the horizon. Therefore, I am inclined to watch this investment until such a feat is accomplished.
A break above the downtrend line will likely coincide with a bullish moving average convergence/divergence (MACD) cross. This indicator, located in the lower panel of the above chart, is used to distinguish whether bullish or bearish momentum is influencing the trading action.
Momentum is required to stage an advance or a decline and, therefore, the implications suggested by this indication are very important.
A break above the downtrend line that coincides with a bullish MACD cross would act as a trigger, which would imply that a move toward higher stock prices has begun.
3. Maple Leaf Green World Inc
Maple Leaf Green World Inc is in the process of seeking application status to build a marijuana grow operation in California. The company has purchased a 20-acre property and has built two greenhouses.
The following Maple Leaf Green World stock chart illustrates the constructive price action that will dictate when this investment is set to appreciate.
Chart courtesy of StockCharts.com
This MGW stock chart illustrates a two-wave structure that I refer to as “constructive price action.” This two-wave structure consists of impulse waves and consolidation waves, which are highlighted on the above chart.
The impulse waves define the stage in a bullish trend when the stock price appreciates in a relentless and unabated move toward higher prices.
The consolidation waves define the stage in a bullish trend when overbought conditions from the preceding impulse waves are alleviated, and the setup for the next advancing impulse wave is created.
This alternating wave structure is responsible for creating and sustaining a trend. In order to suggest that a new impulse wave is in development, the stock price must exit the consolidation wave in an upward direction.
Just like TRTC stock, I am watching for the completion of the consolidation wave, which would act as trigger and imply that higher MGWFF stock prices are on the horizon.
The recreational marijuana market in California is set to commence on January 1, and with it, a new economic horizon will begin. I have outlined three compelling investments that stand to benefit in such an environment, and I am eager to see what will come of them after legalization is in place.