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Opinion: Tilray's IPO is creating a buzz, but don't overspend on marijuana stocks

MarketWatch logo MarketWatch 7/21/2018 Nigam Arora

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Money is to be made in marijuana stocks in the long run. But the recent buzz may be overdone.

Canada’s Tilray (TLRY) has become the first cannabis company to conduct a U.S. IPO. The shares were priced at $17 per share, higher than expectations due to oversubscription. The stock soared after it started trading Thursday for the first time.

There may be sympathy plays in other cannabis stocks for a short-term trade. But don’t let your guard down based on sentiment around Tilray’s stock. Markets are not simple when investing for the long term. Investors need expert guidance. Not only are investors not getting needed guidance, they are getting burned by supposed gurus. Read on for the proof.

Let’s start with two charts.

Two charts

  • Please click here for an annotated chart of marijuana stock Canopy Growth (CGC) 
  • Please click here for an annotated chart of marijuana stock Neptune Technologies (NEPT)

Please note the following from the charts:

• Canopy Growth stock ran up on excitement about the legalization of marijuana in Canada, and many gurus are urging investors to buy this stock as a once-in-a-lifetime opportunity.

• The Arora Report made a negative call on Canopy Growth near the high when most gurus were pounding the table to buy marijuana stocks. I received some hate mail but nothing like when I gave a signal to sell the gold ETF (GLD) and silver ETF (SLV) at their highs.

Related: Investors are making stoner moves by buying marijuana stocks at the wrong time

• Neptune Technologies ran up on excitement over a deal with Canopy Growth.

• The chart shows that The Arora Report not only made a negative call, but short-sold Neptune Technologies near the highs.

• Both Canopy Growth and Neptune Technologies have significantly fallen since The Arora Report’s negative calls.

• The charts show that the smart money (professional investors) was selling near the highs.

• When The Arora Report gives a signal, it almost always simultaneously gives a target zone ahead of time to take profits. The chart shows that the first target zone for taking profits has already been hit.

Similar price action has occurred in other popular cannabis stocks such as Cronos Group (CRON) and Aurora Cannabis (ACBFF).

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Cannabis pharmaceutical stocks

The price action is dramatically different in cannabis-related pharmaceutical stocks such as Zynerba Pharmaceuticals (ZYNE) Zogenix (ZGNX) and GW Pharmaceuticals (GWPH).

We described to our subscribers the classic “sell the news” reaction in GW Pharmaceuticals stock. GW Pharmaceuticals is a buyout target. A buyout can happen north of $200. The Arora Report subscribers have made a lot of money from buyouts. To date, 137 of our portfolio companies have been acquired, generating large gains. This does not mean that GW Pharmaceuticals’ stock should be bought now. Prudent investors would want to wait for a buy signal.

Long-term investments

There is a long-term opportunity to make a lot of money in marijuana stocks. However, investors have to be very careful as, currently, valuations are very high and sentiment is very positive. Often, very positive sentiment is a contrarian signal. It is best to patiently wait for buy signals. In the meantime, there are many opportunities outside marijuana stocks. Examples of where it makes sense for aggressive investors to consider buying on pullbacks are Facebook (FB) Google (GOOG and GOOGL) Apple (AAPL) and Amazon (AMZN).

Nigam Arora is an engineer, nuclear physicist, author, and entrepreneur and the founder of two Inc. 500 fastest growing companies. He is also the developer of the ZYX Change Method to profit from change by investing. The premise is that most money is made by predicting change before the crowd. Arora is the chief investment officer at The Arora Report and the editor of four newsletters that track the ZYX Change Method. Nigam can be reached at Nigam@TheAroraReport.com

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