How The Third Wave in Cannabis Stocks Begins

Friends, this past week, the New Cannabis Ventures Global Cannabis Stock Index soared 26%, its best week since late March, when the index bounced off of its weekly all-time closing low and rallied 32%. We ended the week at 32.17, gaining 38% over seven trading sessions and leaving the index almost 90% above its March 18th low:

Even with the big rally over the past nine weeks, the index remains down 24% this year so far and still below levels seen in February. While stocks in general have been in decline since February, when the S&P 500 put in an all-time high, cannabis stocks have been in a bear market for more than a year.

Why Cannabis Stocks Are Going Up
Trying to explain the rationale for a move is always speculation, as no one knows for sure what drives explosive rallies. One explanation may be simply short-covering. It could also be just that traders returned to a sector they had abandoned. The reality is likely a combination of both of these. Quite simply, with prices still way down but a bottom likely in and stocks in general stabilizing, cannabis stocks were ripe for the picking.

The rally began with a small lift Thursday a week ago ahead of the Aurora Cannabis fiscal Q3 financial report. In fact, that day, the stock reversed off on all-time low set early in the session at C$7.50 to close at C$9.20, up 11% on the day. It had begun the week having closed on the 8th at C$10.92. The company exceeded revenue expectations, reduced its operating loss, announced divestitures and guided for positive EBITDA in the September quarter, all of which sent the stock 69% higher last Friday, with U.S. trading exceeding $1 billion and sparking interest across the sector. Written off for dead, with shorts piling on after its reverse split earlier that week, Aurora Cannabis was the initial catalyst that lured traders back to the sector it seems. Also helping to get the market rallying, in our view, was the GTI Q1 report showing revenue in excess of $100 million, well ahead of expectations and driving a big profit.
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