Pot Stocks Could Hit New Highs Despite Tilray Weakness

Tilray, Inc. (TLRY) reports earnings after Monday's closing bell, shining a spotlight on the nascent marijuana industry after a mixed first quarter. The company cut a deal with the U.S. Drug Enforcement Administration (DEA) to import pot for medical research in 2018, triggering a parabolic rally that trapped weak-handed shareholders in a 200-point September bloodbath. The stock continued to lose ground into December but stabilized in the first quarter.

The ETFMG Alternative Harvest ETF (MJ) also reversed in September but has bounced strongly off fourth quarter lows and is trading close to last year's high while indicators confirm healthy buying interest. Upstarts that include Village Farms International, Inc. (VFF) and CannTrust Holding Inc. (CTST) have underpinned sector strength, highlighting new growth opportunities not affected by last year's brutal reversal.

Tilray, Inc. (TLRY) came public in the mid-$20s in July 2018 and took off in a vertical uptrend a month later, lifting into the Sept. 19 high at $300.00. The 200-point slide marked the opening shot in a multi-wave downtrend that carved a series of lower highs and lower lows into January 2019. A decline into March found support just 55 cents above the December low, but the stock has made little progress into this week's confessional.

The 50-day exponential moving average (EMA) has ended rallies since November, so that's the level to watch for directional signals following the news. It's currently situated at $78, but increased buying interest isn't likely until the stock mounts seven-week resistance near $82. At that point, bulls can focus on ending the string of lower highs with a rally that exceeds the January peak at $106. Given low volatility since December, the 30- to 40-point rally needed to test that level seems unlikely.

Cronos Group Inc. (CRON) has lifted into industry leadership, posting to an all-time high in February. The company reports earnings on Tuesday, March 26. The stock joined the national exchange at $2.36 in March 2017 and dropped into a trading range between $1.00 and $2.70. It broke out in November, entering an uptrend that gathered strength into the January 2018 peak at $11.90, ahead of a decline that tested 200-day EMA support five times into November.

A January 2019 breakout peaked at $25.10 in February 2019, while price action into March has held within a seven-point range. The stock is now trading in the lower half of the range while accumulation-distribution indicators show minor profit taking. Meanwhile, the weekly stochastics oscillator entered a sell cycle in February that is now crossing the panel midpoint. This weighs the odds in a favor of a bearish reaction to next week's earnings report.

Tomato and cucumber greenhouse grower Village Farms International, Inc. (VFF) has emerged as a top-tier marijuana player in recent months, despite the lack of Wall Street coverage. The company was approved for a Nasdaq national listing in February 2019 and is benefiting from a 50% stake in British Columbia's Pure Sunfarms Corp. It traded on the Nasdaq OTC market, a.k.a. "pink sheets," prior to the approval.

The stock's public history goes back to 2010, when it opened for trading at $1.08. It broke out above range resistance at $1.64 in June 2016 and surged to $7.81 in January 2018. Volume expanded through the rest of the year, while the uptick that started in December caught fire after the Nasdaq news. Price has risen nearly five-fold in less than three months, but the uptrend is still showing no signs of fatigue.

The Bottom Line

Tilray has transitioned from market leader into laggard in the past six months, slumping near multi-month lows while other pot plays attract healthy buying pressure. The company has a chance to end its losing streak in Monday's post-market release and trade back into the triple digits.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.