A confluence is coming together to set up what could be a major run in marijuana stocks later this year.
But first, there is one major risk that all marijuana investors need to be aware of right now.
Because if this risk becomes reality, a major correction in marijuana stocks will follow and it will all set up the next big trade in the sector.
Check out this set up.
How Low Can You Go?
The Canadian marijuana industry headed for its most pivotal series of earnings reports.
Next week Cronos (CRON) is set to release its earnings. The week after that Aurora Cannabis (ACB) and Tilray (TLRY) are both expected to report.
This earnings season is a critical one because it covers the first three months of the year.
These three months cover the first three months of 100% legalized marijuana of any major economy in the world.
Considering the run-up in marijuana stocks so far this year, expectations are high at this point.
And that right there is the risk.
Are expectations too high?
If they are too high, watch out. The entire sector could get hit hard.
For example, CannTrust (CAN:TRST / US:CTST), another large Canadian marijuana company.
CannTrust’s report was good.
It said its cultivation expansion projects were coming along as expected, it increased its patient count from 37,000 to 58,000, and it slashed its cost of production from $5.16 per gram to $2.94 per gram.
But since this is the marijuana industry, the key number is revenues.
CannTrust reported revenues of $16.2 million, a 132% increase.
It was good, but not good enough.
CannTrust shares fell from $10.04 before the report to close at $8.11 after the report – a total one day drop of 19%.
Worse yet, CannTrust shares continued to slide and slide.
This week, a good five weeks after the last earnings report that started the decline, CannTrust shares hit a new low of $5.55.
All together that’s a 44% decline all sparked by a good-but-not-good-enough-earnings report.
And right now, there’s a real risk of this hitting the rest of the industry.
But if you’re prepared, that’s a very good thing.
The Pain Before The Gain
If some not-good-enough reports hit the rest of the Canadian marijuana industry, things could get ugly for the big marijuana stocks fast.
But again, any sharp decline should be viewed as an opportunity.
The bigger the decline, the better.
A sharp drop in Canadian marijuana stocks be a big buying opportunity because the next big boom in Canadian marijuana industry should start to pick up towards the end of the summer.
You see, when Canada legalized marijuana use, it held back on setting regulations for extract-infused products.
As a result, the potential legal marijuana market was basically halved because vapes, edibles, beverages and all extract-infused products aren’t available in the legal market yet.
As long-time Seed Investors know, these are the products that will make up most of the legal marijuana industry when its fully mature.
The good news is the extract-infused product regulations should be set later this year.
After that expect the Canadian marijuana industry to roar back to life and major surges in revenues and earnings to follow.
In the end, there’s a potential big dip for the world’s largest marijuana companies this summer.
But remember, the worse it gets, the better the rebound will be.
The bigger the dip, the bigger the rip.
Make sure you’re in position to capitalize on this top marijuana trade either way.