How High?! Cannabis stonks steal the show
Forget Bitcoin; this week, the cannabis sector stole the show. One of the hottest performs in this sector was Tilray, a Canadian pharmaceutical and cannabis company incorporated in the United States. TLRY has seen an explosive 670%+ move since the start of 2021. The stock peaked on Wednesday at $67.10 before an abrupt 50%+ correction, pushing the price back down below $30.
The past few weeks' bullish rally was reminiscent of late 2017 when speculation grew that the pro-legalization Democrat party would take control of the house in the next 12 months, and they would push for potential reforms and new bills to be passed. This speculation saw a 400%+ rally in several different weed stocks, and the fundamentals were aligning again to create a similar rally. We covered this possible bull run in a previous newsletter, 'One Trillion Dollars!'. We explained why the current fundamentals could be the catalyst to create a similar move and which were our favourite stocks on our watch.
I, Jonny, purchased both MJ & ACB ETF's back in early January after extensive research and when the technicals gave a clear entry to get exposed long. I closed both of these positions out last week with aggressive management for a combined +170% return in less than six weeks. I also entered long TGOD, a cannabis industry company listed on the Toronto Stock Exchange on Feb 2, 2021, when the technicals developed a clean entry, covered on Feb 1, Market Update. I closed out that position last week for a +65% return in 8 days.
The bullish rally was initially fueled by the speculation of lighter regulation under the Biden administration, Democrats in control of both chambers of the U.S. Congress, making the likelihood of significant cannabis reform higher than ever. There's a good chance that marijuana will be decriminalized at the federal level; however, that's not the same as full marijuana legalization throughout the U.S. It would allow individual states to enforce their own laws, but, more importantly, decriminalization will enable companies such as Aurora, TGOD to list their shares on a major US stock exchange, giving ease of access to investors.
It is speculated that last week's pronounced volatility was partly due to the new breed of retail traders causing chaos across the markets. The same WallStreetBets Reddit army that largely contributed to GameStop's historical short squeeze in January as they all are posting their 'pot profits' within the forum. Over $440m of retail capital has blazed into cannabis companies since the start of February, double what January saw, according to Vanda Research. This new herd mentality creates a volatile market environment, where stocks are quickly driven above their actual value, creating a bubble-like crash. The higher prices are artificially driven via demand, the quicker they will fall. The herd then moves on to their next pick, not worried about the mess they just created.
We still believe the cannabis sector shows strong reasons to remain optimistic as the industry grows. Larger macro factors at play, combined with reasonable valuations and strong technicals, grabbed many investors' interest, including our own. The industry is still clearly in the early stages of growing globally. Reform is necessary in the U.S. to allow these companies to increase their profits and grow to a larger scale, so fundamentally, there's still a long journey ahead. We remain bullish on the overall industry and watch how different stock prices develop over the coming months. We will wait for technicals to align before looking to get exposed long again.
Is there value left in Bitcoin?
At the end of 2020, many digital assets have seen significant gains, with this bullish momentum continuing as we started 2021. The crypto market capitalization of all the existing coins hit an all-time high of $1.53 trillion. Bitcoin tickled with the long speculated level of $50,000, peaking at $49,707 per coin. In the previous 90 days, BTC has seen a price increase of over 200%, and it hasn't been alone with some alternative crypto assets seeing much larger gains. To mention one, the infamous dogecoin has seen over 2000% increase in the same period, with many other 'altcoins' following suit.
Arguably the largest use case for Bitcoin today is as a store of value. It is seen by many as a hedge against inflation, as an appreciating asset that will retain its worth or increase in purchasing power over time. 2020 was proof that the current monetary system is outdated and inefficient. As central banks continue to print trillions upon trillions, devaluing their currencies, there seems to be no slow down as the economy is artificially held up by the noise of money printers saying 'brrrr'. Bitcoin cannot be printed. It has a finite figure of 21 million bitcoins, c18.6 million of which have already been mined into circulation. This number changes every 10 minutes as new blocks are mined. As we near the tail end of supply, it's only logical as demand continues to increase, price continues to rise. It's simple economics.
The December 2017 bull run was widely considered the discovery phase. It was a highly speculative run driven by mostly retail capital, which created an incredibly volatile asset. There were still so many barriers to mass adoption and, more importantly, stopping BTC from fulfilling its use case as a form of payment. Since December 2017, we have seen colossal expansions in the overall digital asset ecosystem, even as prices dumped. Some of these barriers still exist, however, the progress made in terms of regulatory clarity, better mechanisms for confidential transactions, more education, friendly interfaces for the technology built around Bitcoin in the past three years have been vast. The sentiment has shifted from Bitcoin being a speculation play on its possibilities, and towards a focus on the long-term value proposition it presents, which you can argue is still underappreciated. A phrase that we hear a lot now is it's more dangerous not to be invested in Bitcoin than to be.
We have had another game-changing week for the crypto space. It started with Elon Musk announcing Tesla had purchased $1.5 billion in BTC with plans to accept it as a form of payment. Mastercard confirmed they are preparing to allow several cryptocurrencies to move through their network directly, allowing its customers to transfer through its network without converting back and forth from crypto to fiat to make purchases. BNY Mellon, the oldest bank in the U.S. announced they have set up a digital asset unit with the end goal of eventually treating cryptocurrencies like any other asset.
As capital increases into the sector, more liquidity is provided, which should dampen the high volatility early adopters grew so used to. Bitcoin continues to prove its utility, and demand is only rising. The old adage 'buy low and sell high' does not seem to have manifested yet, as bullish momentum continues and shows little hint of slowing down as adoption only increases. This simply indicates how undervalued these assets were before this bull run (and still could be) when we factor in the utility value they present.
Currencies: There were some beautiful setups last week, aligning as we have been waiting for. On Friday, further U.S. stimulus was announced, and this sent currency pairs flying back in the direction of the extremely overextended runs they are on. As these runs are getting even more overextended, our bias's medium-long term remain the same, with significant pullbacks needed.
Commodities: Oil remains very overextended after it continues with bullish momentum and its 301-day rally. We have a bullish outlook on Oil, which will be a feature topic in the coming weeks. However, we want to see the price decelerate and have a pullback to value before getting exposed.
Equities: We have our eyes firmly on the banking and financial sector. As most other sectors continue to rampage into fresh all-time highs, the Financial sector shows us something different. We are decelerating and forming reversal patterns at all-time highs. We will be watching for this resistance to hold before digging into the sector to pick our favorite stocks to potentially short.
TMC Club – Thinking Bigger
Modern society teaches us that we have limitations, most of us are programmed from a young age to think small, to think average. We all know our thoughts control our actions, which create our reality. As 'rah-rah' as it may sound that not thinking big may be stopping you from achieving success, it couldn't be more accurate.
How to think big, we hear you ask?
Belief: The size of your belief determines the size of your success. If you believe that you will achieve the average, your actions will reflect that which subsequently creates your average reality. Believe you will achieve huge things and watch your actions begin to change.
No excuses: If you see obstacles as reasons why you won't succeed, how will you ever dedicate yourself to working through them? Successful people focus on WHY they WILL succeed. When obstacles arise, which they will, they'll put the time aside to think through the actions to work past them.
Take action: Action is the vaccine to fear. By thinking big, you will take big action where and when you need to get you to what you desire. So many are reactive, only reacting when they have to. Become proactive, use your initiative and start taking big action immediately.
We will leave you to contemplate the below quote and the above thoughts to start your week off. We are created for greatness, so start believing and acting as so.
'I dare you to think bigger, to act bigger, and to be bigger, and I promise you a richer and more exciting life if you do.' – William Danforth
What's happening this week?
Monday, February 15th, 2021 @ 1pm PT
Market Update with Jonny Godfrey
Wednesday, February 17th, 2021 @ 1pm PT
Market Update with Irek Piekarski
Thursday, February 18th, 2021 @ 11am PT
Coaching Call with Irek Piekarski
TMC Diamond access required
Friday, February 19th, 2021 @ 9am PT
Insights with Jonny Godfrey
All the best for the week ahead and we'll see you in the club!
Jonny Godfrey & the TMC Team