Weed market collapse? Not even close, but a good time to pick up

Oh, the sky be falling in the weed market! At least that’s what you’d think if you were an alien landing on earth and getting your information from various online trading groups on Facebook, Twitter and more focused on the weed space.

Today, most marijuana plays took a bit of a stock price hit, as Organigram (OGI.V) faces down its class action lawsuit for somehow (it says it doesn’t know how) selling product laced with poison for a year or so. The Canadian government kicked that boulder downhill by saying (as most thinkers already knew) that it would take a while to get full recreational weed happening.

Really, nothing happened today that we didn’t already know was happening, but at the top of every sustained stock run (and that’s what the weed market has been for about six months now), you’ll often get the weak hands bailing at the first scent of bad news.

To be sure, Organigram’s shenanigans (which loops in Aurora (ACB.V) since OGI sold their shitty weed to that company) and Mettrum’s earlier stupidity (which loops in Canopy Growth (WEED.T), since they’ve since bought that company) was just the catalyst needed to put some doubt in the minds of the weaker shareholders. And once you get a bit of a collapse and trip some stop loss triggers, the collapse gets larger without anyone needing to physically hit a sell button.

But let’s take a look at this collapse and see how collapsey it actually is.

SUPREME PHARMA (SL.C)

Lost 6.2% Wednesday, taking $0.10 off its price to land on $1.49 at the time of writing. Supreme sat between $1.70 and $1.80 for most of the past month while it waits for its final sales license, and saw a late dip yesterday which carried on early today.

When you see a late hour crush on a stock (or stocks) that isn’t attached to news, that will sometimes speak to a short attack. The shorter wants to leave an impact, and an end of day ‘down 15%’ that gives folks reason to freak out overnight will often be followed by another bang down in the morning.

I like to call this the ‘douchebags playing dumbasses’ tactic, and Supreme looks like it was hit by it today.

Funny thing: That was followed by a quick $0.12 jump as those shorters covered and took their money.

This is how to play a big drop. You just get out of the way, wait for that bottom, and jump in for cheap stock. If you believe in what you’re buying, and you’re not just buying shit because it’s been going up a bit, then the occasional cratering doesn’t hurt you.

Supreme is exactly the same company today that it was three days ago, and the weed market in Canada is exactly the same as it was three days ago, so if you’re getting $1.70 stock for $1.50 today, you should smile and thank the gods for their tree shaking.

INVICTUS MD STRATEGIES (IMH.C)

IMH dropped 8.1% today, though it was untouched by Tuesday afternoon’s big dip. This is a vertical integrator that has been snatching up assets left and right, raised a bunch of war chest cash at a good price, and has been up with a bullet for months now on the back of some sustained value creation.

So why is it down? Because everything is down.

And why am I listing it here? Because it’s a good representative of many weed-related companies that took a 10% loss yesterday, and will likely be back in a day or two. Cannaroyalty, Lifestyle Delivery Systems, Calyx, Veritas, Emblem – they all took a 7-10% hit and, frankly, shouldn’t have.

Unlike Supreme, IMH was unlikely a part of the short attack, so it hasn’t had that rebound Supreme did when the shorts bailed. That’s a value scenario for you.

CANOPY GROWTH CORP (WEED.T)

Big ole Canopy is a bellwether for the health and fitness of the Canadian weed space, being as it’s the thing outsiders buy and sell when they just want some industry exposure (or otherwise).

Canopy now owns Mettrum, which is exposed in its own class action suit for much the same reasons as Organigram, so it’ll have to make good if/when that goes to trial.

If you’re looking purely at stats, you’d say WEED has gone down from $13.20 to $10.40 in the last month, which is a big swathe of cash when you’re valued at $1.35 billion, but is Canopy really worth a billion dollars-plus in any rational sense?

I’d put it to you that while, yes, they’ve slipped from $11.80 to as low as $9.70 over the last 24 hours, you’re seeing that same short covering bounce at the time of writing, and that if you’re ever going to jump into T.WEED (I’ve somewhat notoriously never found it an attractive option), this might be a good time to do so.

AURORA CANNABIS (ACB.V)

Aurora will also be involved in the class action suit against Organigram, no question, but most likely as a witness, not a defendant. It was Aurora that discovered the dirty deeds when they tested weed they had sourced from OGI. Lawyers will want to know what ACB told OGI, and when, and what OGI did about it. This shouldn’t harm Aurora at all, since they did the exact right thing from the outset, made it public, and reimbursed their users appropriately.

But hey, they still took it in the eye from the shorters.

Unlike the others, Aurora hasn’t had their bounce, which I think makes this stock as much of a buy as it’s been in a long time.

Yes, ACB is a bit stretched with their big plans, but I like this as an entry, and I really like the fact that the company demonstrated how much nicer it’s playing with consumers, Health Canada, and investors than was Mettrum and Organigram..

OGI’s class action defense amounts to ‘nobody told us we had to test for poison, so we didn’t test for poison that, apparently, we were spraying on our plants’, whereas Aurora’s is ‘we didn’t have to spray for poison that we knew we weren’t using, but we did anyway because we’re selling medicine here and that’s how you do it.’

APHRIA (APH.V)

Even with the weed crunch yesterday, Aphria is basically only rolled back to their price point from a week ago. That’s some ironclad stock action.

APH had their own scandal not too long ago, but appears to have managed to avoid regulatory sanctioning through that issue, and could come zooming out of the class action era like a champion.

APH put out a press release today affirming it’s ‘commitment to producing safe medical cannabis, 100% free of pesticides.’ Yeah. I’m not going to quote it here because, frankly, that’s what you’re supposed to do.

They may as well have put out a news release saying, “Just so we’re clear, WE ARE NOT ORGANIGRAM.”

Speaking of..

ORGANIGRAM (OGI.V)

What a fucking disgrace this outfit has become. OGI has HALVED since November. Let’s just repeat that – in a time when just about every other weed-related company in Canada – INCLUDING MATICA – has increased in value, some by multiples, Organigram stock has HALVED.

$4 in mid-November, $2.02 today. Cronos Group (MJN.V) is worth nearly twice Organigram’s market cap now, and (Peace Natural aside) Cronos is largely crap.

This DESPITE insider buying by now kicked-upstairs boss Denis Arsenault that we suspect was designed to ensure he couldn’t be thrown overboard entirely.

Organigram, today, is the worst performing weed stock of all LPs, by a mile. It’s facing lawsuits, recalls, it lost its organic certification, its issues have seen all its competitors have increased regulatory testing foisted upon them, and it is the topic of countless newspaper articles pointing out low testing standards across the industry.

Organigram screwed it for everyone. And the CEO who watched over all this got kicked upstairs to the Executive Chairman role where, he says, he’ll now be focusing on investor relations.

Good. He can keep wearing his failures.

There was a time when OGI was courted for merger by large players, such as Aphria, and rumour has it those deals were rejected not because they weren’t good deals, but because Arsenault wasn’t being offered a sufficient parachute to leave.

Well, his stock is worth half what it was back then, and will no doubt continue to bleed while he’s still tossing about news releases about how his company has been so hard done by while it was shipping poison.

Let the court cases begin. And if you’re the shorting type, maybe move your attention where it should be and ride Organigram to its final destination. rather than mess about with those companies that are doing what they promised they would.

— Chris Parry

FULL DISCLOSURE: Invictus, Calyx, Lifestyle Delivery Systems and Emblem Cannabis are Equity.Guru marketing clients. Organigram used to be a client, several years ago, but didn’t pay their final bill – just so we’re being transparent.