Canadian Marijuana Stocks Top Old Market Favorites
We know that Canadian marijuana stocks are popular, but in a testament to just how much they’ve taken over the scene, we’re seeing some of the top Canadian pot stocks overtake blue-chip companies in terms of trading volume.
Canopy Growth Corp (OTCMKTS:TWMJF, TSE:WEED) and Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB) were the fourth and fifth most-traded stocks on the S&P/TSX Composite Index over the past three months. The only companies with more trades? Banks.
Together, these two Canadian marijuana stocks saw more than $500.0 million trades in a day, once again speaking to just how popular the industry has become.
But what does it mean for investors?
Marijuana Industry Sees More Institutional Investment
When trading volume and value goes up this high, you can attribute at least some of it to the increased interest from institutional investors.
You see, the marijuana industry has been for a long time dominated by retail investors keen on getting in on an emergent industry as it grows. Institutional investors, meanwhile, tend to play things more cautiously and, therefore, have been less likely to hop into what is known as a volatile industry.
On average, $291.0 million worth of Canopy Growth stock and $280.0 million worth of Aurora Cannabis stock were swapped on markets on a daily basis for the past three months. (Source: “Canopy tops BCE, Manulife as marijuana stock trading ramps up,” The Globe and Mail, April 10, 2018.)
In contrast, consider that Canadian energy giant Enbridge Inc (NYSE:ENB) saw about $279.0 million worth of activity in that period.
Chart courtesy of StockCharts.com
The good news for investors is that all this money changing hands means renewed interest in the marijuana market and an increased focus on it by larger investment groups. This will help inject capital into the market and fuel future rises.
The industry saw spikes in investment when Cronos Group Inc. (NASDAQ:CRON) joined the Nasdaq, becoming the first Canadian marijuana stock to do so, and opening the door to a number of U.S. investors previously unwilling to invest in over-the-counter stocks or Canadian markets.
If Aurora Cannabis stock and Canopy Growth stock are able to follow suit, we’ll likely see another explosion in trading volume in the industry, which will again support future rises.
But there is one downside to the increased trading volume.
Marijuana Panic Selling
It’s no secret that the industry has performed poorly in 2018 so far.
The marijuana market has been mired in a correction for some time now, with many companies seeing massive losses over the past three months.
One of the knock-on effects is that many investors are looking to jump from what they see as a sinking ship and unload their stocks in a massive sell-off. This is classic herd mentality, and it’s why adages like “buy low, sell high” exist.
The market often moves as a cohesive force, so if you can accurately predict these movements, you can time your buys and sells to maximize value.
It’s easier said than done, of course, but the increased trading volume does indicate that there is marijuana panic selling going on (with the results being depressed values across the board).
Savvy investors are being gifted the opportunity to play the “buy low, sell high” game, but, of course, timing is everything. Knowing when the stocks have hit a bottom and are likely to spike—and which stocks will spike the highest—is crucial.
I think that both Aurora Cannabis stock and Canopy Growth stock still have the potential to be major winners in 2018. While the first half of the year is going to continue to be bleak, I believe that Canadian marijuana legalization will help rescue the floundering industry and put things right.
Chart courtesy of StockCharts.com
Another important point is that these types of swings may begin to disappear as institutional investors start taking over.
Larger investment groups aren’t necessarily immune to panic selling, but they do typically have more resolute positions compared to retail investors. And that makes sense. After all, it’s an entirely different situation if you’re investing with billions of dollars of assets or with your own retirement fund.
Investors who are interested in day trading marijuana stocks and taking advantage of the high volatility in the nascent industry ought to really pay attention to this current swing. It could be one of the few remaining dramatic shifts in the industry.
When it comes to the increased trading volume of Canadian marijuana stocks, it’s a mixed bag for pot stock bulls.
On the one hand, the increased level of cash flowing into the industry is a welcome sight. It will help propel companies to future gains and it generally increases the strength of the market.
Conversely, this higher trading volume speaks to marijuana panic selling, which is no good for anyone, really.
Sellers who got in at the right time will still see massive profits, but they are losing value by selling when the industry is at a low point. As for buyers, they have to be wary of getting in too early and having to suffer early losses at the tail end of the correction.
But my overall outlook for the marijuana industry is still quite positive, correction and all.
The increase in trading volume only further cements what we already know to be the foundation of this industry and Canadian marijuana stocks: high potential and high volatility.