How to Play the Pot Stock Market in a Downturn

pot market correction
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Pot Stock Correction

It’s not exactly news that 2018 has been a rather dismal year for pot stocks. Anyone who has been paying attention has seen a large number of prominent marijuana company stocks either stagnate or, in some cases, drop by as much as half their value so far this year.

For marijuana bulls like myself, it hasn’t been pretty. But just because times are tough now doesn’t mean the well has totally run dry. There are still a good number of companies that investors can put their money in that are likely to pay dividends down the line, when the pot stock recovery eventually hits (and it will).

So what’s a marijuana market bull to do when the industry is in a correction? I’ve outlined a few options below, each with a specific stock attached and a level of risk assessed.

Low-Risk Pot Stock: Play the Long-Game

“Low-risk” is a bit of a misnomer here because, after all, this is the marijuana industry we’re talking about. Risk is baked into the sector. It’s precisely that volatility which makes the sector so lucrative to crafty investors, but also, of course, riskier than, say, a more established industry.

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But in relation to other pot stocks, I believe that Canopy Growth Corp (OTCMKTS:TWMJF, TSE:WEED) offers a solid port in the storm.

Canopy Growth stock has experienced solid growth over the past month, seeing its shares rise by about eight percent.

While eight-percent growth in a month is a pretty solid return in almost any case, obviously, marijuana bulls who want those double-digit weeks may be thinking there are greener pastures to frequent.

But for me, the true value in Canopy Growth stock is that it’s a pot stock that has staying power.

Chart courtesy of StockCharts.com

The company is the largest by market cap in the industry, with a market cap of $4.9 billion. As such, it’s considered a leader in the market and often leads the pack.

But with size comes staying power. Canopy Growth stock often offers the levels of growth potential that more nimbler companies do (if a little bit less), but with the added security of being able to withstand a bad day on the market and not see its shares collapse.

Canopy Growth offers a sweet spot between strong future gains and security.

Not to mention, as far as long-term picks go, Canopy Growth is probably one of the strongest pot stocks for those who believe—as I do—that the marijuana industry is going global.

Canopy Growth has also jumped on to that thinking, expanding its reach into Europe, with subsidiaries operating in Germany (although the German government has recently put a hold on licensing to grow products in Germany). (Source: “Canadian firms forced to play waiting game as Germany hits pause on cannabis licensing process,Financial Post, March 29, 2018.)

Even with the setback from the German government, Canopy was still able to register record quarterly sales in Europe’s biggest market as of its last quarterly report. (Source: “Canopy Growth Corporation Reports Third Quarter Fiscal 2018 Financial Results: Focussed on Execution,” Canopy Growth Corp, February 14, 2018.)

With an international focus and strong foundations, I see Canopy Growth stock being a major player in the market for years to come.

Mid-Risk Pot Stock: Pick Your Moment

One of my favorite pot stocks that I’m usually banging on about is Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB).

The company has grown leaps and bounds from when I first began covering it in late 2016.

Now, however, 2018 has been unkind to Aurora stock and the company is down almost 20% over the past month.

That, however, may not be the bad news.

The mid-risk play here is to follow that age-old cliché of buying low and selling high. Going against the market, so to speak. And I believe that Aurora stock presents that exact type of opportunity.

Chart courtesy of StockCharts.com

There will be a bottom to Aurora’s troubles. The question for me is not “if,” but “when.” Timing a purchase of Aurora stock at the right moment before the company begins its recovery could net an investor a good chunk of value in a promising company at a discount price.

Sorting out the “when” is, of course, the devil of this particular detail.

Still, my Aurora stock forecast has the stock coming back to life by early summer at the latest. From there, I believe we could see a bounce back of 50% by the end of the year, especially in conjunction with Canadian marijuana legalization.

What makes the strategy mid-risk is getting in too early and having to suffer through the remainder of the marijuana correction.

High-Risk Pot Stock: Swing for the Fences

This last pick isn’t all too different from Aurora, but the main issue is that I have more confidence in ACBFF stock versus this next pick.

Aphria Inc (OTCMKTS:APHQF, TSE:APH) is a company I have been following for a long time now.

While at first I was very bullish on the company as it enjoyed superior gains throughout portions of 2017, I began to lose faith in the stock as time wore on, with its volatility being a little too much for my more conservative approach to investing.

Having said that, few companies have been hit as hard as APHQF stock has recently. The company’s value has shrunk by nearly 50% in the past three months.

Chart courtesy of StockCharts.com

My Aphria stock forecast sees the price continuing to drop for some time before a recovery begins. Even then, I’m not sold that it will have as strong of a bounce back as Aurora stock.

But—and this is a big “but”—the massive decline has opened up the company to potentially huge gains if a strong recovery is in store.

It will take careful watching and a good reading of the market, but APH stock could offer investors one of the better short-term plays should a recovery begin to take place.

Analyst Take

Pot stocks offer a great variety of options to investors, even in market downturns like the one 2018 has shown us.

There are a good number of strong companies from which to choose for investors, both risk-averse and risk-prone.

Just because the numbers are down (or, at least, they’re not as high as we’re used to) it doesn’t mean it’s time to totally abandon ship.