Get Ready for Marijuana Market Rally: Approved by Shark Tank Billionaires?
The sharks never would have gone for it…
If you watch the show Shark Tank, like I do, then you know to get the sharks to invest, you have to sell them on earnings.
And if your company is overvalued, you’re out.
That’s what happened to marijuana.
At the height of the bubble-like territory for the marijuana market and cannabis stocks, these companies were valued at 70 times future sales.
There’s no way any of the sharks would have gone for that.
But today, the latest earnings reports are out. Would the sharks buy in now? I’ll tell you what this means for you.
Watch today’s Bold Profits Daily video to find out why the marijuana market and cannabis stocks have just the right branding to trigger a huge rally. And the exchange-traded fund to buy today to ride the momentum higher.
Marijuana Market Earnings Season
This week I want to talk about something big that’s gone on over the past week and that’s marijuana earnings. Earnings season is coming to an end but all four of the big four of the marijuana companies reported their quarterly earnings this week.
It’s a big deal because we can see their growth, how their business is doing and what they see for the future. By “the big four” companies I mean:
Whenever people discuss marijuana stocks at least one of these companies come up in conversation because these are the biggest four out there.
They are the leaders in sales, sales growth and they are all multi-billion-dollar companies. They are the stocks we focus the most on when we are evaluating the marijuana industry as a whole. It was important that these four companies reported their earnings in a three-day span.
What we saw in their earnings reports is that these companies are still growing like crazy. Over the past year, all four companies combined have grown their sales 219%. They have more than tripled in a year, which is pretty incredible. The market clearly expected more because these are all down this week after reporting earnings.
Paul and I have talked about this a lot because it’s been stressful to own marijuana stocks. We have a few over the various services like Profits Unlimited, Extreme Fortunes and $10 Million Portfolio. It’s been a rough ride. This is exactly what a bottom feels like. There’s no hope left and you just want to sell.
Things have been going down in a straight line for eight months in the marijuana market. All four of those I mentioned are now 70% or more below their 52-week high. It’s pretty incredible. That’s a big crash, especially for an industry growing so fast. Thing is, it hasn’t grown to the market’s expectations.
Ultimately, there’s two factors. One is the market expected more. Two is everyone piled into these marijuana stocks in the beginning. In 2018 and the beginning of this year these stocks went up in a straight line — 100% or more. That’s what we can expect in any situation like that that’s kind of like a bubble situation.
Everybody crowded into a trade and at the top there is no one to buy in at those prices. People are happy taking profits or holding on. They saw it went up 200% in four months, it has to be going up more in the future. They say, “I don’t want to sell here. Why do that when I could hold on and make future gains.”
That’s the psychological aspect of holding on through big gains like that. The opposite end of that, when stocks go down 70% in eight months, you just want to get out of it. You don’t want anymore pain. We believe these stocks are going to come back. The downside here is very limited.
How Shark Tank Indicates Market Rally
One of the ways you can tell is by how stocks are valued in relation to the next year’s sales. If you watch Shark Tank, which I’m a big fan of, they talk about the company’s expectation of future sales — what you are going to make in the next year. Sometimes people say, “I don’t know.” That obviously a bad answer. They’re all out.
If they say they are going to make around $100,000 next year but their company is valued at $2 million, the sharks are going to be out too. It’s overvalued. The height of this bubble in marijuana stocks, these companies were valued at 70 times future sales. There’s no way any of the sharks would have gone for that.
Now, they are down to below 10 times future sales, which is normal in the stock market for something that’s growing, especially when you are tripling sales every year. This is a much more reasonable spot for these stocks to be in. It’s tough to ride stocks down 70% or more. This is an area where we believe these stocks are going to start to bottom out and go back up.
Marijuana is such a popular sector. It’s a buzzword. It has that branding to trigger a rally when it comes back. We believe the bottom is not far out. Last week in my Bold Profits Daily I recommended to buy ETFMG Alternative Harvest ETF (NYSE: MJ), which is the marijuana ETF.
I want to recommend to do that again because we do believe the bottom is not far off. We said that this quarter was going to be it when the stocks would go up because of the growth these companies have seen. We were right about the growth, but it didn’t meet market expectations. This is what the bottom feels like in anything.
It felt the same for Paul and I both in crypto. We were holding on to Bitcoin when it was down around $5,000. It hovered around $5,000 for a few months. Then, all the sudden within a couple days it dropped all the way down to $3,000. We didn’t think it could go any lower and it was crazy that it happened.
This is the same feeling we’re getting with marijuana stocks right now. If you look at MJ, the price of that went to about $18, then it went up. We thought it could be the start of a rally, especially because earnings season was coming up for those big stocks. That’s a catalyst for a momentum shift.
If you get upward momentum in these stocks it could carry them pretty high, but it looks like this quarter was not it. We are still bullish on this sector. Like I said, these companies tripled their growth. Over the next year they are expected to more than double from here. Over two years, that’s six times growth these companies are making in their sales.
This is incredible. You hardly see this in any sector in the market. We believe that the demand is going to come back into these stocks sooner rather than later. Buy MJ. Of course, don’t put all your money into it. That’s not smart with any stock. This is something we believe is going to be a great investment over the foreseeable future.
Sooner rather than later people are going to come back into these stocks. We feel like the selling is almost over. That feeling is determined by, “wow, I can’t believe it got any lower,” just like with crypto. Paul made his famous buy into Bitcoin at $3,200 right at the bottom. It was the same feeling as buying MJ right now.
Editor, Rapid Profit Trader