Pot stocks have been taking a dive for months now (since around when I started to question their actual value) and just recently some have seen drops to points at a 52-week low. From my time at in training at Morgan Stanley this is one of the biggest indicators when it is time to buy. When the stock is tanking and everyone is trying to get out it pays to be a hero and rush in. Basically unless there is a great reason for stocks to tank (like PG&E’s liability with the California Wildfires I’ve discussed previously) when it happens is often a good time to buy because you can make money on the rebound and potentially get great prices on discounted stocks. So to determine if there is a reason we can look at 2 factors
1.     What is the current P/E of the stocks and what are the other factors we can consider for analytics of the value for these stocks
2.     What real world scenarios or situations have led to what we see today? I.e. has the president declared pot will be illegal forever, did the company or companies involved cause of the new smoking epidemic, did they cause the wildfires that led to death and property damage in California? Etc.
In my time with training I did not enjoy the technical analysis (#1) as much as the other stuff that was not a focus of research and study (#2) but that is not to say I wasn’t good at it. Consider the following: generally you want a Price to Earnings ratio of 20 and to compare the stock you are valuating against the total P/E of the index to which it belongs, if the price of your chosen stock is below the index it’s at a discount and if it is above it may be overpriced. This is just one of many factors to consider and for simplicity (and because I don’t have the time to do a more thorough analysis right now) it is what I’ll be looking at before moving onto the second consideration (real world events).
The Pot stocks I looked into were ones I previously considered/discussed and to compare I tried benchmarking the price to earnings ratio of MJ (the ETFMG Alternative Harvest Index) in which most of these stocks are included. One of the biggest issues I ran into however is the negative earnings most MJ companies have due to the regulatory restrictions in place presently. The market views these companies as running a risky business and if they run out of cash before more meaningful legalization comes they run the risk of bankruptcy. So normal technical analysis methods do not work as well for these types of stocks as it would for stocks that are more stable and generating profits.
Here are the takeaways as of Saturday September 28, 2019
1.     Aphria                                                 N/A (negative)
2.     Aurora Cannabis                     N/A (negative)
3.     Canopy Growth                      N/A (negative)
4.     Cronos Group                         4.69                
5.     Tilray                                       N/A (negative)
6.     Hexo                                        N/A (negative)
7.     ZYNE                                       N/A (negative)
8.     MJ EFT                         -3175.07
From this exclusively we see that the only stock with positive earnings is Cronos and that it is also significantly higher than the MJ ETF so with technical analysis it is overpriced. However as you can probably tell this does not do much for us so I shifted more to the part of financial analysis I prefer which is real world events.
 
In consideration of real world events with relation to the market the SAFE banking act was just passed by the House (https://www.statesmanjournal.com/story/news/2019/09/25/us-house-passes-bill-giving-pot-businesses-access-banking/2447088001/) and is on the way to the Senate, this bill will make banking other financial services accessible to legal marijuana businesses. If it passes the senate and becomes law we will have legal marijuana that has access to banking in the United States, which means companies that working in legal sale and production will go up in value and one company in particular will probably tank. Innovative industrial properties, is a lend lease company that is a legal loophole for lending money to growers and producers. Their business model, in essence, is to buy property from the producer and then lease it back to them, this gives the producer a large sum of cash to work with and the company (IIPR) the ability to acquire leases with rents much higher than they normally would within the real-estate market. So once banking becomes legal they will not be able to maintain this business model because growers and producers will have better options with loans from banks. So if you are able to, shorting IIRP will likely yield great results, unless they are able to fundamentally redefine their organization, before the senate passes pot.
 
TLDR: A pot banking bill passed the house, if it passes the senate pot companies will gain value and IIRP will lose value so it’s a good time to short that and long pot.

During discussions at Morgan Stanley this week it was brought up that there are early signs of the economy going downhill looking at a combination of “market forces” and with the yield curve inversion. One of the topics we discussed was the fact that we have been in a long-term bull market and that the markets go through downturns as well as upturns and so it would make sense that a bear market is on it’s way. Looking at the numbers average stock market return per year is reportedly about 7% (https://www.thesimpledollar.com/where-does-7-come-from-when-it-comes-to-long-term-stock-returns/) and the stock market experiences bull run periods that last an average of 7 years or so (https://wealthyretirement.com/retirement-planning/historical-bear-market-trends-reason-hopeful/) and this last one has been going since 2008 when the markets bottomed out. So we’re actually quite overdue for a bear market period (which usually lasts about 26 months).

 
So what can you do to plan for this and make it work to your benefit? It turns out this is a great time to buy stocks because when they start falling you are getting them at a discount and when they begin to raise your gains will be even greater. This conclusion is what the people in big financial institutions discuss and practice and is (mostly) all from technical analysis of the market.
 
If you want a view more external to the market here is my take on how you should/could prepare and what to expect. Look for opportunities to diversify your income sources or find some job security. If you are in a good position financially it could be a great time to buy stocks for the reasons stated above but one thing that you need to consider is what will happen to your primary income sources. Generally, when the economy falls on hard times two things happen that start a kind of chain reaction in the system.
1.     Firstly, companies stop hiring so there are no new jobs.
2.     Secondly, companies start cutting costs, which means layoffs.
This means that people find themselves jobless and unable get a new job because no one is hiring. Most people do not have 3 years worth of savings just laying around in their bank accounts and start to run out of savings quickly. This leads to people selling off their investments in order to cover their costs and the market takes a downturn because more people are trying to sell than buy.
 
So in theory the practice of buying during a rescission is great but in practice it may not be possible for many people. As such the two best ways to prepare I believe, are either finding something with great job security or having a diversified income source (such as a second job, part time weekend position, or work outside your primary income source). Hopefully none of this comes to pass but during my training this week it was a topic of discussion and I wanted to write a post to make you all aware of what might be coming.
 
Notes: I recommend having 3 years of savings in your bank account that is easily accessible and available for emergencies if you foresee and economic downturn on the horizon. This is because no economic rescission has lasted this long (barring a combined environmental catastrophe as happened during the great depression) and if it did happen we’d all be in lot more trouble than just losing money anyway.
 
TLDR: Discussed impending recession during training this month, find a position with job security and have diversified income sources as a precaution

Since the start of the year we have seen a ballooning of value within marijuana stocks that gave many investors the opportunity double their money within a month period on the stock market betting late December and selling early February. Putting your money in the market and buying Aphria, Aurora Cannabis, Canopy Growth, or Cronos Group could have seen over double returns on your investment if you bought around Christmas time when the markets were bottoming out and sold in the first few days February when you'd had just over a month of rich gains. Some of this hype was from the legalization of recreational marijuana in Canada last October but most of it I think was from the legalization of medicinal hemp as passed in the farm bill. Because the United States is a much bigger market than Canada and there have already been sweeping and broad legislative successes at the state level it makes sense that some of the more popular marijuana stocks had an up shoot.
Recently however (Between February 4th and 11th) many marijuana stocks slipped after Aphria fought off a hostile takeover bid by Green Growth Brand. Prior to the announcement when Green Growth had made clear it's intent to buy up a large portion ($2 Billion) of Aphria stock the value spiked to a peak of $10.95 per share during the day on February 4th and closing at $10.84 but this was then followed by a significant drop in the stock value to $8.38 closing on February 11th and $8.08 at lowest on February 12th. This all makes sense when considering the stock in isolation but what about the other marijuana stocks?
Aurora Cannabis dropped from $8.04 to $7.17 per share during this window
Canopy Growth dropped from 49.72 to 42.94 per share during this window
Cronos Group dropped from $23.25 to $19.44 per share during this window
The list goes on. But none of these companies fought off hostile take overs or chose not to be acquired by a larger competitor as what happened in Aphria's case. Additionally, no new or significant news came out that would have reasonably led to any drops in the marijuana market that significant.
This is the first sign we have that much of the marijuana stocks in play are being bet on speculatively and not for substance. Meaning the prices could skyrocket across the industry for good news from one company (which we've seen) or, more importantly, prices could sink for similar bad news, which we recently witnessed.
Another sign of the hype train leading to wild speculation in the marijuana industry is the lack of stock movement for good earnings reports. Consider for instance using the benchmark of Snap, which had an earnings report (February 5th) that was mostly positive. The price per share of the stock consequentially jumped from $7.04 to $8.59 on the positive reports, beating expectations. It would make sense then that stock prices would jump on positive earnings reports if the marijuana stocks reflected a value for something of sustenance rather than just speculation. What is surprising however is the fact that many of the marijuana companies reporting exceeded expectations in their earnings. This past week not a single one of the marijuana stocks that had earnings reports gave results that disappointed and many were striking wins for the industry which indicates a good upward trend in sales for future quarters. Why then did the values of stocks not go up immediately following the report? It stands to reason that this should have happened as it did with Snap, but this is not what we observed last week. As such I think that it would be best to pull out of marijuana for the time being, until the speculative nature of these stocks stabilizes into something more based in reality.
TLDR: MJ stock is currently inflated and not correlated with reality (purely speculative) so it would be safe to exit now and wait for stability

PG&E plans to file for bankruptcy https://kfbk.iheart.com/featured/sacramentos-latest-news/content/2019-01-14-pge-announces-plan-to-file-bankruptcy-this-month/ so if there is a way to make money from that, now’s the time.

I was recently accepted into a Financial Training Program at Morgan Stanley! I have been trying to get into this program since 2016 so I am extremely grateful for this opportunity. I will be part of the spring 2019 cohort and will begin in April. I cannot wait to learn about stock market analysis from some of the best in the world. Stay tuned because I’ll be (hopefully) check back frequently and posting updates regularly here.

December 26th
Happy Holidays and Merry Christmas. With the stock market down I’ve been doing a lot of research lately to find out if it is possible to make money during a downturn and I believe it can be if you are careful. While stocks collectively (through the Dow Jones and S&P500) have been down, individual stocks can still go up. I believe this will be the case for various Marijuana brands. Over the past several years’ it has become progressively less taboo to the point that the farm bill recently legalized the production of “industrialized hemp” in the United States. I believe this will cause a similar explosion of the industry to Prohibition once it was overturned with weed likely to be a big winner and becoming societally accepted as alcohol is today. It is therefore my prediction that the companies in a position to benefit from the legalization of marijuana will experience explosive stock growth in the coming years.
 
TLDR: Invest in pot cause it’s getting hot!

The fires in Northern California have been causing problems across the state with smoke becoming so bad that schools had to cancel classes (something which has not happened at the University of California, Davis in decades). The fires are leaving a trail of devastation in their wake with many people having to flee for their lives and potentially costing billions of dollars in losses of property and productivity revenue. This may simply be because of my biases but I believe there will be increasing pressure on PG&E over their negligence of electronic infrastructure maintenance with transmission lines and power cables covering much of Northern California. There have already been cases in which PG&E was to blame for the fires Northern Californians experienced in previous years [https://www.govtech.com/em/disaster/Santa-Rosa-Sues-PGE-Seeking-Financial-Damages-From-October-Wildfires.html] and with the recent hit their stock took as a result of the court rulings and their liability for the fire damages is stands to reason they will far a lot further. Especially considering the potential case being filed against them on Wednesday [https://www.cnbc.com/2018/11/14/overwhelming-evidence-against-pge-in-deadly-fire-says-lawyer-suing.html]. I believe that it is reasonable to assume their stock will again take a severe hit after these catastrophic fires are over regardless of whether or not they are found liable. As such if you are in a financial position (and have the knowledge/how to) I would recommend shorting the stock of PG&E with the idea that, should the stock fall as much as it has in the past year it is reasonable to believe they will likely be declaring bankruptcy, potentially clearing the way for a public takeover/shift to a system like the Sacramento Municipal Utilities District.
 
TLDR: PG&E is probably going to be liable for the fires and if so it’s stock would take a big hit so now would be the time to short.