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Medical Cannabis Stocks: What Traders Can Expect From Pot Stocks

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Like a cloud of smoke in an Amsterdam coffee shop, the legalization of medical marijuana is expanding fast.

Thirty-three U.S. states now allow medical use of cannabis or cannabis-based products. More than 30 countries have legalized cannabis for medical use. On December 25, 2018, Thailand became the latest country to legalize medical cannabis.

According to Somchai Sawangkam, chairman of the Thai legislative drafting committee, “This is a New Year’s gift from the National Legislative Assembly to the government and the Thai people.”

A gift, indeed …

For traders interested in medical cannabis stocks, it’s another confirmation that one of 2018’s hottest trading niches is still heating up.

What Are Medical Cannabis Stocks?

Medical cannabis stocks are share issues from companies with a business focus on the medical use of marijuana. While it’s a relatively niche corner of the market, this industry segment is growing as acceptance of medical marijuana expands.

Companies in this industry research and develop cannabis-based treatments for a variety of ailments. While research results vary, there is substantial evidence for the use of medical cannabis in the following areas:

  • Treatment for chronic pain in adults.
  • Improvement of spasticity symptoms in multiple sclerosis patients.
  • Treatment for chemotherapy-induced nausea.
  • Improved sleep in individuals with conditions like fibromyalgia and obstructive sleep apnoea syndrome.
  • Cannabidiol, one of the active ingredients in cannabis, has also been found to reduce epileptic seizures.

There are companies which provide cannabis products for both medical and recreational use. The primary business focus determines whether they are pure play medical cannabis stocks.  

An example of a company involved in both recreational and medical cannabis is Canadian company Tilray (NASDAQ: TLRY). Their medical offerings include THC oil, THC/CBD oil, dried buds, and ground cannabis.

[Hint: there are opportunities for traders interested in plays involving companies in both the recreational and medical cannabis markets]

What does all this newfound love for the medicinal properties of maryjane mean for medical cannabis stocks?  And what should traders expect?

What Should Traders Expect From the Medical Marijuana Stock Market?

If you paid any attention to weed stocks in 2018 you know it was one of the hottest stock trading niches. Aside from the pure-play pot stocks, many well-established companies showed interest. The likes of Coca-Cola, Heineken, and Constellation Brands are all involved at some level.

Dozens of small start-ups, selling everything from cannabis-infused drinks to lollipops and cakes, went public in an attempt to cash in on the exploding market. At the same time, some serious pharma players continue research into the benefits of cannabis-based drugs for multiple conditions.

The legalization of weed for recreational use in Canada and 10 U.S. states has expanded the market — in a big way. But it’s the medical marijuana industry that continues to provide the foundation for acceptance and expansion.  

For example, California was the first U.S. state to allow medical marijuana use in 1996. It wasn’t until 2016 — some 20 years later — that marijuana became fully legal in the state. As more countries legalize medical marijuana, this industry segment looks set for steady growth.

On Which Exchanges Are Pot Stocks Listed?

Of the 373 marijuana stocks listed on the Marijuana Index (yes, there is such a thing), 43 are considered biotechnology with a focus on cannabis pharmaceuticals or therapeutic use.

These 43 medical cannabis stocks are listed on 11 different exchanges:

  • 14 of the 43 medical cannabis stocks are listed on the OTCQB (the OTC “Venture Market”)
  • 10 of the 43 are listed on the OTCPK (OTC Pink).
  • Five companies list on the NASDAQ.
  • One company, Canopy Growth, is listed on the NYSE.
  • Other exchanges with listings include the CSE (Canadian Securities Exchange), the TSX (Toronto Stock Exchange), and the TSXV (TSX Venture Exchange)

One of the reasons most of these stocks list on over-the-counter exchanges is due to uncertainty regarding federal regulations. If (when?) medical cannabis is legalized by the federal government, it’s likely more companies will list in the larger exchanges.

As well, several U.S.-based companies have chosen to list on Canadian exchanges due to their more lenient listing requirements. In an effort to keep investment capital flowing, they look outside the U.S. toward friendlier markets.

Hot Stocks Right Now

Got pot stock fever? Here are some companies to keep on your radar. This list is by no means comprehensive — it’s a short list of stocks we’re watching and researching.

Stock #1

GW Pharmaceuticals Plc (NASDAQ: GWPH)

UK-based GW Pharmaceuticals is a serious player in the medical cannabis arena. While it’s fairly high priced for the trading strategies we use at StocksToTrade, it’s worth keeping an eye on this global player.

2019 revenue expectations for its lead product Epidiolex (used in the treatment of certain types of epilepsy) are positive. Another GW product called Sativex is used for the treatment of spasticity due to multiple sclerosis. They also have several more products in development.  

It’s possible this could be more of a buy-and-hold type investment rather than a trading opportunity.

It’s also possible that news catalysts related to GW Pharmaceuticals could create sympathy price moves in related or similar stocks. Medical cannabis stocks sometimes show a tendency to behave in this sympathetic manner. This is important to note if you’re trading lower-priced stocks.

Stock #2

Cara Therapeutics Inc. (NASDAQ:CARA)

Connecticut-based Cara Therapeutics develops treatments for pain relief, inflammation, and pruritis (itching). Back in May, Cara stock got a big boost when they announced a licensing agreement with Vifor Fresenius Medical Care Renal Pharma for use of its product Korsuva™ in the treatment of chronic kidney disease.

While Cara stock got pummeled with the rest of the market in December, it could provide some strong trading opportunities going forward. Cara is shifting its focus toward anti-pruritis applications. This move is supported by both research data and market opportunity.

Several new trials are planned for 2019 to confirm data from previous trials. This is the kind of news catalyst that can drive strong price action.  

Stock #3

Corbus Pharmaceuticals Holdings Inc. (NASDAQ: CRBP)

Corbus Pharma focuses on the development of treatments for inflammation and fibrotic diseases. The company’s lead product, Lenabasum, is currently being evaluated for the treatment of systemic sclerosis, cystic fibrosis, and dermatomyositis.

Corbus was issued a U.S. patent for Lenabasum earlier this month — news which didn’t seem to move the stock price.  But a buy signal from one of the powerhouse financial institutions the day after Christmas led to a nice upward move. This stock could provide strong trading opportunities in the coming months.

How to Find Medical Marijuana Stocks and Take Advantage of This Opportunity

#1 Don’t Trust Only Stock Promoters

One thing is certain: If you only pay attention to stock promoters you’re in for a rough ride. These companies get paid to promote stocks. They are marketing and PR machines. Their vested interest is in pumping the stock up to make money for the company owners.

Does this mean you shouldn’t pay any attention to them? No — the companies involved often pay the promoters to get the word out about new deals and new products. As an active trader, you know that news like this can be a strong catalyst driving price action in the stock.

In other words, you should look for the news and the press releases — they’re a good way to determine if a stock is worth watching. The promoters serve their purpose so long as you don’t trust them. Instead, take their hype and use it as a starting point for your research.

#2 Look For Great Stock Market Indicators

There are indicators you should pay attention to when researching and planning any trade. It’s no different when you’re looking for hot marijuana stocks to trade. Let’s look at a few of the obvious indicators:

  1. Biggest percent gain. This is one of our top ways to identify stocks to trade. Look for big movers. When you see strong price action it is often a sign of more to come. This holds true for medical cannabis stocks.
  2. News catalyst. For many of these stocks, news drives price action. Yes, even press releases from stock promoters. Use the news.
  3. Trading volume. Be careful attempting to trade medical cannabis stocks with too little trading volume. This affects liquidity and could make it difficult to get your trade orders executed fast.  

Float. Are there enough shares being traded for you to open and close positions quickly? Are there few enough shares that you can take advantage of supply vs demand imbalances?

#3 Follow Stock Chart Patterns

The medical marijuana stock market is not immune to recognized chart patterns. You’ll see all the classics like the bull flag, morning panic, and breakout or breakdown patterns. The point is, you want to learn to recognize the patterns (through study) and then learn to recognize them in real-time. This will increase your chance of success.

One recurring pattern in the medical cannabis stock market during 2018 was breakouts based on a strong news catalyst. More than once these looked like the pattern Tim Sykes calls the supernova, where the stock shot up and then crashed back down.

If you want to learn how to recognize and trade chart patterns, check out StocksToTrade Pro. You’ll get access to our lead trainer, Tim Bohen, for the market open and close every trading day of the year. Follow along as Tim explains the tools, rules, and discipline necessary to be a successful trader.  

#4 Company Balance Sheet

A balance sheet is like a snapshot of a company’s financial position at any given time. Along with income and cash flow, the balance sheet gives investors insight into the operations of a company. It creates a pretty clear picture of how stable a company is and how it is being funded.

For traders, this might not seem as important. But if you’re wary of stock promoters (you should be) then a quick glance at the company balance sheet is telling. Need some insight about whether the promotion is a scam? The balance sheet is often enough to determine the level of hype involved.

Take the time to learn how to read a company balance sheet. Yes, this applies to medical cannabis stocks too!

#5 Earnings Reports

Earnings reports can be the catalyst for big price swings. Do yourself a favor and look for upcoming earnings reports for the companies on your watchlist. How do earnings hold up against projected earnings? Also, how does the particular medical mj stock behave after the earnings report?

Sometimes earnings reports don’t create the price movement you expect. This might be due to other factors such as research data or failure to win a contract. In the medical cannabis arena, there are a lot of companies spending money on research and development faster than they can make it. Others have no revenue at all.

All things to consider as you decide which medical maryjane stocks to trade.

#6 It’s Always a Good Idea To Use a Stock Screener

Using a stock screener isn’t only a good idea, it’s a requirement for today’s traders. Back in the day, you might have needed subscriptions to 10 different services and/or websites to screen for possible trades. Today, you can do it all with one stock screener.

Here’s the deal, however…

As mentioned above, a vast majority of the medical cannabis stocks are currently OTC listings. Not every stock screener lists these stocks. Those that do, often don’t include everything you need to prepare your trade setup.

For example, you might have access to the price and trading volume of an OTC stock but you have to look elsewhere for news. This is one of the ways StocksToTrade shines — not only as a stock screener but as a trading platform.

If you’re serious about trading — not only the potentially lucrative medical cannabis stock market — but any penny or small-cap stocks, then StocksToTrade is perfect for you.  

StocksToTrade is the ultimate trading platform created by traders, for traders. It gives you access to all major U.S. markets including the NASDAQ, the NYSE, AMEX, and the OTC Markets Group (this includes OTCQX, OTCQB and the pink sheets).

Check out these StocksToTrade Features:

  • Super-fast, real-time Level 1 and optional Level 2 trading data — so you can see exactly what’s happening with bid and ask prices, and supply vs demand. This is a huge advantage for traders as you’re able to determine liquidity at any given moment.
  • Time-tested, winning strategy scans — if you can click a button you can identify potential wins based on proven strategies. Even if you’ve never made a trade in your life. [hint: this does NOT excuse you from needing to study! But it could make your trading life more pleasant.]
  • Real time criteria based news streamer — so you can almost instantly get the news you need to confirm or bust your trading thesis. This is huge. Why go searching all over the internet for that one piece of news you need to confirm what you are seeing happen on a chart?

Instead, set the news streamer based on your specific trading criteria. With medical cannabis stocks, this can give you a big advantage as massive price action can occur quickly on the back of news and press releases.

  • Quickly find related companies in the same industry — so you don’t have to go anywhere else for information. Sympathy plays — where stocks in the same industry move together — were a big part of the surge in weed stocks as a whole in 2018. Using StocksToTrade, you can make this a standard part of your research and watchlist routine. You won’t have to go hunting, the software will do it for you.

These are just a few of the features you can expect when you use a superior trading platform like StocksToTrade.

The Bottom Line

It’s exciting times for proponents of legal marijuana. Rapidly expanding medical cannabis legalization gives this industry segment a positive forward outlook. Based on investment in research and development, the industry should continue to grow at a blistering pace in the coming years.  

For traders, this presents an opportunity. You can position yourself to take advantage of the explosive growth of new companies and new products coming to market.

Be aware that many of these companies will fail. So, while trading their stocks might be a good strategy for you, we don’t necessarily advocate a buy-and-hold strategy. In other words, if you’re looking for the next Microsoft — because that’s what all the stock promoters are saying, right? — be careful.