Cannabis Expert Q&A in The War Room
On Tuesday, we had a very special guest join us in The War Room.
Matthew Carr, Chief Trends Strategist of The Oxford Club, came in to lend his expert advice on pot stocks and trends. If you’d like to learn even more from Matt, click this link!
Below is a condensed version of the interview. Enjoy!
– Jason Roberts, Senior Managing Editor
Bryan Bottarelli: Hi, Matt. Welcome! What a day to come into The War Room – when we’re seeing a major afternoon reversal. Welcome to our world!
I just got back from Las Vegas. I go around this same time each year. But something was dramatically different this time – versus when I went last year. And that is you’re seeing a ton of cannabis dispensaries pop up on every corner. Some of them are advertising heavily and have very impressive-looking buildings. Is this a trend we’ll soon see across America? And if so, what’s the way to play it?
Matthew Carr: Hmmm… Las Vegas is a unique market. I think it’s an underappreciated market at the moment because it doesn’t have a residential population as large as that of Illinois, New York or California. But Las Vegas has a massive tourism industry – more than 40 million annual visitors. That’s what Planet 13 Holdings (OTC: PLNHF) is banking on. The company runs the largest dispensary in the world with its “Superstore.” And it accounts for more than 10% of cannabis sales in Las Vegas.
And you’ve started to see other U.S. multistate operators (MSOs) move into Nevada as well recently. We’ve also started to see other states where dispensaries are opening like crazy. But I think Las Vegas is going to be something different.
Karim Rahemtulla: Matt, can you comment on the vaping hysteria and the effect it will have on cannabis stocks?
Matthew: We’ve already seen vaping cartridge sales drop heavily in several states. This is a real issue. Through the first six months of the year, vape cartridges accounted for 25% of all sales. The FDA has launched an investigation. Sales of flavored electronic cigarettes have been banned in two states. So this will have a short-term impact.
We’ve seen Altria (NYSE: MO), Cronos Group (Nasdaq: CRON) and mCig Inc. (OTC: MCIG) pull back already. And it’s weighing on the industry. But I think new regulations will be implemented in turn, which is actually a long-term positive – helps push out the illicit market.
Karim: But aren’t some of the big players focusing on stuff like edibles, drinks, etc.?
Matthew: Yes, Karim! The big “Cannabis 2.0” legalization in Canada will take place in a couple weeks. Everyone is preparing for that… like Canopy Growth Corp. (NYSE: CGC), Hexo Corp. (NYSE: HEXO), Strategy Shs EcoLogical Strategy ETF (NYSE: HECO), Aurora Cannabis (NYSE: ACB) and others.
And here in the U.S., you have companies like Plus Products (OTC: PLPRF), which is dedicated to edibles and gummies.
Bryan: Matt, let’s get into more specifics. Maybe I’m putting you on the spot here – but that’s what happens when you enter The War Room! So here goes: What are your three favorite cannabis stocks to buy and hold for the next year – based on stock price? For instance, I’d like to know your favorite cannabis stock priced at $25 and over, your favorite cannabis stock priced between $10 to $25, and your favorite cannabis stock priced $10 and under.
Matthew: Over $25? I’d say Innovative Industrial Properties (NYSE: IIPR). This is a real estate investment trust (REIT) and one of the only pure pot plays that pays a dividend. In the $10 to $25 range, I’m still in the Canopy Growth Corp. camp. This is such a big international player that I still think it’s a must for cannabis investors. This was my No. 1 pot stock to own from 2017 on. And Canopy trading at $24 with the Cannabis 2.0 markets going live next month in Canada is big for the company.
Under $10, I still like MedMen Enterprises (OTC: MMNFF) – the company earns so much per square foot. It has a great brand and name recognition.
Karim: Speaking of Canopy… the company has been a DOG. No getting around that. I know you recently recommended it to your readers. We have a cheap LEAPS position in it. When do you expect that to pay dividends with Constellation Brands (NYSE: STZ)?
Matthew: That should be very soon. Bruce Linton always wanted people to go into a bar and order a “tweed and tonic.” The derivatives/infused products market should be legalized in mid-October.
Karim: Cool. What is your rationale for recommending Canopy at the current levels?
Matthew: Canopy already has vape products ready to go. It will launch in December, and it won’t be a situation like it is in the U.S. These vape products are regulated.
Right now, Canopy has star power… Snoop Dogg, Martha Stewart and Seth Rogen. And it has the backing of Constellation Brands. It also has a footprint in the U.S. with hemp. It’s poised to be one of the largest players with its acquisition of Acreage Holdings – one of the largest MSOs in the U.S. The company is in dried flower, extracts, CBD, pet products, beverages, hemp and vape pens.
Bryan: Star power… but yet still a losing investment. Looking at Canopy, it’s down from $48 to $26 over the last year. Looking at a former highflier like Tilray (Nasdaq: TLRY), we can see it’s down from $133 to $29 over the last year. So I’m here asking myself, why such extreme weakness? Has the shine come off the cannabis sector?
Say you have $0 invested in the cannabis sector right now. Is this an opportunity to buy – or avoid?
Matthew: BUY! It’s been a tough year for pot.
Bryan: What’ll be the catalyst that turns things around?
Matthew: Since the end of March, the sector is down 40%. But the industry is prone to bear markets. We’ve had five bear markets in the past three years. This one is the longest.
The catalysts? Upcoming Cannabis 2.0 legalization in Canada, changes at the federal level in the U.S., the House voting on the SAFE Banking Act and the Hart-Scott-Rodino Antitrust Improvements Act, approvals in the U.S., and so many mergers and acquisitions (M&As) deals bogged down in the DOJ approval process.
Bryan: Okay, every War Room member will be tracking this, Matt! Here’s my last question before turning things over to Karim. Trulieve Cannabis (OTC: TCNNF) is a stock that I’ve bought and sold a few times – each time with success. Great exposure to Florida. The company is profitable. Thoughts on this one? Should I buy back in?
Matthew: Trulieve is an investment on the Florida medical market that’s going to be worth more than $1 billion next year. And the company has 33 dispensaries open in the state. Like all MSOs, it’s been hammered since April. But you’re looking at 100%-plus growth over the next several quarters: $66.5 million and $73.5 million over the next two quarters and nearly $390 million in revenue next year.
Karim: In your research on trends and timing, have you noticed a pattern developing for pot stocks? Can they be considered a non-correlated investment?
Matthew: I would love to say there is! Pot stocks shouldn’t be impacted by trade wars and tariffs. And I believe they should go into the vice and sin categories. We’ve seen the sector sell off and hit lows in mid-to-late August. So right now I’m looking to see if those lows we recently saw are going to hold.
Bryan: I really like Trulieve at $7. If it retests that low support level, I’m going in. Okay with you?
Matthew: Definitely. I like the stock a lot for that Florida exposure.
Bryan: Yea, I tend to agree. It’s a $10 to $14 stock, in my view.
Matthew: The whole sector is at a discount right now.
Karim: Have you factored in government regulations in your picks – pot is still illegal at the federal level in the U.S., right?
Matthew: Definitely. I was in Canadian stocks for more than a year before legalization, and even though pot is illegal at the federal level, that should change within a couple of years.
This week, the House will vote on the SAFE Banking Act. That’s a big one for cannabis companies. That gives them access to banking and financial services. I also believe we’ll see the STATES Act passed. And that’s why my primary focus has been U.S. companies this year. It’s been difficult, but I think five years from now, we’re going to look back and recognize this as one of the greatest moneymaking moments in the markets.
Jason Roberts: Now that Bryan and Karim have finished with their questions, I’ve got some member questions for you. “Matt, you’re a trend trader. Are there trends you’ve seen in cannabis shares?”
Matthew: I have started to see some trends. You know, the market isn’t that old. Data goes back five years. And over the last three years, we’ve seen five bear markets.
Three of those bear markets have ended in mid-to-late August. So that’s why I’m waiting to see if those recent lows hold. We also have “pot smoking season” in the U.S. This you can see from the state sales data. It begins in March and stretches to about August or September.
Jason: Thanks! Here’s another one: “What are some sectors that you’re looking at right now?”
Matthew: Right now is one of my favorite times of year. Not because I love fall or winter, I hate both. But because we’re about to head into the biggest shopping bonanza of the year.
So right now I’m looking at a lot of retail companies. We have Singles Day coming up in China. This is a great time for Chinese e-commerce. And then the fourth quarter is a great time for a number of technology stocks. We have all the biggest online shopping days ahead of us… and that’s a boon for a number of industries.
Bryan: So the lovebirds in China will buy each other cannabis as a Singles Day present?
Matthew: Not cannabis, but everything else – $30 billion in spending in one day. Nothing can compare to that!
Jason: Speaking of retail companies, “What are your thoughts on GameStop (NYSE: GME)?”
Matthew: I hate GameStop! This company is circling the drain. I had puts on them last year. I can’t believe it’s still in business. Every video game publisher has moved to digital sales. No need for it.
Jason: Yeah… outlook for it in the long term is not good. Here’s another for you: “What’s one of the first things you look at when searching for stocks to trade seasonally?”
Matthew: What do I look at first? Quarterly revenue. I look for what I call a “sawtooth” pattern. It’s not a smooth incline, but something that’s uneven that looks like the teeth of a saw.
Then I look at how shares of that company perform on each of those quarterly reports. If you do that, you’ll start noticing a pattern. For example, Netflix (Nasdaq: NFLX) kills it on Q4 but collapses on Q2. Those are the first two things I look for. Once you start doing that – and realizing the trading power in that – you will do that until the end of time.
Jason: Got it. Here’s another: “Matt, regarding the cannabis markets, do you believe that the biggest players out there might be the only ones to survive?”
Matthew: This is an interesting question. Bruce Linton, former CEO of Canopy Growth Corp., stated that he thought there would be only a half dozen stocks left after a few years. But that’s largely due to M&As. We’ve already seen M&As go crazy over the past year. Larger companies are buying up smaller ones. I don’t think it’s only survival of the biggest. However, I do think that the largest will probably be the most protected from being gobbled up.
Jason: Here’s another: “Do you recommend a stop loss on pot stocks? They seem to be very volatile.”
Matthew: It depends, in my Reefer Retirement Portfolio, I don’t use trailing stops. We look to see if there’s a fundamental change in the business. For trading, I do use trailing stops, anywhere from 25% to 50%… though I did suspend some of those this week because of the House vote.
So it is volatile. You just want to make sure a manageable loss doesn’t become a life-changing one for you.
Jason: Got it! Here’s another: “Matt, what do you think about the future of CannTrust Holdings (NYSE: CTST)?”
Matthew: What a mess! The company went from being one of the most respected and trusted in the medical industry to being busted for a slew of improprieties. With its license from Health Canada suspended and Alberta and other provinces returning the company’s product, its outlook doesn’t look good.
Jason: Okay, a couple more for you… “What do you think about the probability of the SAFE Banking Act getting passed?”
Matthew: I think the SAFE Banking Act will pass the House. The bill has 206 cosponsors, and under suspension of the rules vote, it would need 290… a two-thirds majority to pass.
In the Senate, it’s believed the act might have a tougher time because of the Republican control. But the SAFE Banking Act has cross-aisle support, banking industry support and support from 33 state attorneys general. House Majority Leader Steny Hoyer told legislators to prepare for a vote this week.
Jason: Thank you for the insight there. Here’s a very important investment question, and then I’ve got one more after this: “Would you rather have to fight Mike Tyson once OR talk like him for the rest of your life?” We take things real seriously here…
Matthew: Ha! I wouldn’t want to fight him. I would talk to him. He has his own brand of cannabis. And apparently smokes tons of it… literally. His Tyson Ranch is also expanding. So I would much rather hang out with him and talk (especially if he’s smoking THAT much) than get punched in the face.
Jason: Matt, final question for you before you leave. Where can members find out more about the opportunities you’re looking at now?
Matthew: The best place to get my recommendations is through my Dynamic Fortunes research service. In fact, there are three opportunities I’m looking at right now that should crush it in the coming months. We’re talking profiting from one of fall’s most reliable consumer trends… one for cashing in on the “special occasion” season… and a proven trade for dominating the retail season in the final quarters of the year.
To find out more about these trades and my service, click on this link. And if you have any questions, you can call my Member Services Team at 888.570.9830 or 410.864.3090.
Thanks to everyone for having me! It was a blast! Hopefully you’ll have me back again! Bye!