$2 Billion Cannabis Name Is Top Stock Pick After Viral Trump Post

It was a quiet Sunday. Too quiet.

As you relax and enjoy your weekend, something odd crosses your social media feed. A video, posted by President Trump, that has gone viral. The video extolls the virtues of cannabis and related medications and remedies.

This was not on your bingo card. The question is, does the posting of this video create a tradable event?

I’m not interested in debating the merits of hemp, cannabis extracts, so-called "medbeds" or anything else in that video. What does interest me is the reaction of stocks in the cannabis sector, which are on fire thanks to Trump’s since-deleted video. 

Tilray Gets High

For example, shares of Tilray Brands, Inc (TLRY)  climbed by over 60% on Monday. Despite that gain, New York-based Tilray is still down by 27% since I referred to the stock as "toast" two years ago.

Curaleaf Holdings (CURLF) , which runs a chain of dispensaries, climbed 33%. Colorado-based GrowGeneration Corp. (GRWG) also inhaled deeply, gaining 26.6%.

Of these three names, Tilray appears to be the strongest. GrowGeneration (left chart, below) is also strong. GrowGeneration blasted out of a cup formation on Monday.

Curaleaf (right chart, below) appears to be one of the weaker names in the sector. Curaleaf formed a head-and-shoulders over the past six weeks, and made contact with its 50-day moving average (blue) last week. 

Sweet Leaf

These medications have their merits. The successful usage of cannabis in medical situations is well documented. 

What I’m less certain of is whether shareholders will earn any sustainable profits on this rally. Do these stocks deserve the outsized market reaction that investors saw on Monday? 

Investors might turn a profitable trade on Tilray or GrowGeneration, but I’d keep my focus on the short term. We could see some follow-through on Monday’s price action, simply due to the runaway nature of this bull market.

Up in Smoke?

In the long run, the picture is hazy. Not about the prospects for cannabis in and out of medicine, but specifically in whether investors will sell cannabis stocks into this rally.

Is Trump planning a cannabis-related executive order? Is legislation coming that would result in the wider usage of cannabis products? Would Medicare and Medicaid pick up the tab? Soon, we’ll have the answers. 

In the meantime, if I were going long in this sector, I’d choose Tilray. This stock has a much larger market cap than GrowGen ($2 billion versus $125 million), and trades at a much higher volume, making the stock more liquid. 

Illiquid stocks sometimes trade with wide spreads. Sometimes, it can be difficult to find someone to take the other side of your trade. If you must play this sector, Tilray may be your best bet. Just be ready to cut it loose if the momentum fizzles out. 

At the time of publication, Ponsi had no positions in any securities mentioned.