Investing in the cannabis sector
The cannabis sector has had its ups and downs in the past month. The trend has mostly been flat to downwards-trending for most of the stocks within the sector. Canopy Growth (WEED), which has been one of the strongest players within the sector, has been weak in the current month with the stock nearly 11% lower as of the time of this writing. Cronos Group (CRON), HEXO (HEXO), and CannTrust (CTST) all fell 13%, 11%, and 12%, respectively.
The right time to buy?
As the above chart shows, the current valuation levels (represented by the yellow line) are beginning to head higher. Most of the stocks that make up the median in the above chart have declined and have caused their respective enterprise value to decline as well. Therefore, the only way for the valuation levels to head higher would be a decline in the denominator, which in this case is the forward sales estimate.
Yes, most companies saw a downward revision to their respective 12-month sales, which caused the valuations in the above chart to go higher. This scenario suggests relative weakness in sales growth expectation for cannabis stocks, which could mean selling pressure on the cannabis stocks mentioned in the footnote of the above chart. The Horizons Marijuana Life Sciences ETF (HMMJ) has declined by 6% so far in May.