Way back in August, when MediPharm Labs Corp. (TSX:LABS) (OTCQX:MEDIF) reported profit for Q2 2019, Rich forecast a new norm for cannabis stocks.
His prediction was that only companies reporting profit could expect to see a surge in the stock market. Previously, when the industry was still in its early days, cannabis companies were not expected to report a profit, only the expectation of profit. But those days are over, and now investors want to begin seeing returns.
“You need to show profitability,” says Rich. “If you show profitability you have a chance to win. If you don’t show profitability it’s going to be a very tough road.”
In the time since then, we’ve been seeing the truth of Rich’s prediction bear out. Most companies in the sector are currently experiencing a slow decline in stock price. While some assorted stocks are showing signs of life, the only companies that investors should trust are those with positive Adjusted EBITDA in their Q3 reports.
To illustrate, let’s take a look at two market movers today and contrast their actions. Both technically saw gains, but only one company is reporting profit. This will help us understand which cannabis stocks investors should consider trusting, and which ones might be better avoided.
Cannabis Stocks: MRMD is Coming Out of the Valley
MariMed Inc. (OTCQX:MRMD) has had a tumultuous October. Like most cannabis stocks, it started the month on a downward trend, priced at $1.00. MRMD shares then fell further to $0.70, its lowest price since January 2018.
Luckily, things began to slowly turn around for the stock from there. MRMD is now priced at $1.05 and seems inclined to continue growing.
Rich placed MariMed #3 on his list of top cannabis stocks to watch in October, and it looks like the company will be one of the few in the cannabis industry to leave the month at a higher price than it entered it. It’s also being cited as a potential catalyst for industry growth in 2020.
“They have revenue and they have profit,” explains Rich. “There are very few companies in the cannabis sector that have profit, and MariMed is one of them. That’s why the stock has done well.”
Cannabis Stocks: MYM Experiences a Dead Cat Bounce
Strangely, MYM Nutraceuticals Inc. (CSE:MYM) (OTCQB:MYMMF) is also in the green right now. That’s despite the fact that, with a minor exception, the company has released no news as of late and is not currently turning a profit.
In less than 24 hours, seemingly apropos of nothing, MYM rose 152% from $0.12 to $0.32. Today it leveled off around the $0.25 mark, which is still a significant gain overall. Is this a sign that Rich’s take on cannabis stocks is way off? Can investors see MYM as a sign of an industry-wide pick-up?
Sadly, no, as Rich explains:
“It’s called a dead cat bounce. When you’ve been beat up so much that you’re actually undervalued, underappreciated, under-exposed, do you know who’s going to take that stock up? The market makers.”
A “dead cat bounce” is a sudden increase in a stock’s value amidst an overall decline. These gains are typically short-lived, and should not be considered an indication that cannabis stocks are on the rebound.
While there’s no telling with any certainty how the industry will move next, it’s worthwhile distinguishing the actual, consistent gainers from the temporary ones. Keep watching RichTV Live for more insight into cannabis stocks, and let us know your thoughts on the market in the comments below.
Featured image: DepositPhotos © [email protected]