How to Best Capitalize on the Cannabis Sector Now

Senior Market Strategist explains three different ways to profit from pot stocks

CMT, Senior Market Strategist
Oct 22, 2021 at 8:00 AM
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    On Thursday, October 14, Schaeffer's Investment Research's Senior Market Strategist Matthew Timpane, CMT, was a featured presenter at the Benzinga Cannabis Capital Conference. Near the end of his presentation, Benzinga's Patrick Lane shot out a comprehensive question: What does Schaeffer's think is the best way to capitalize on the cannabis sector right now?

    Patrick Lane (Benzinga)

    Hey, man, I really appreciate that. If you don't mind. I'll just ask you one quick question. When it comes to investing in nascent markets like this one, right, Cannabis, everybody says it's, you know, the first inning bottom of the first top of the second, right, that's where we are in this one exam. And obviously, the volatility has been just nutty in this one and the markets overall. But it has had a profound effect on the cannabis industry.

    What would what advise? And obviously not not specific advice, but what do you suggest that a lot of the investors out there look at? If it's just one thing that they're honing in on? Is it fundamentals? Is it looking at charts? Is it specific, you know, areas of the company's financials that that they should be doing research on? What's the number one thing that you would advise them to look at?

    Matthew Timpane CMT (Schaeffer's Investment Research)

    Oh, actually, thanks for asking. So I would look at it from kind of a holistic perspective, the one thing that you're going to want to see from a fundamental perspective is constantly growing revenue. Increasing TAM (total addressable market), you know, kind of gives you that mentality that you need to be able to be in these growth stocks, and it gives you the confidence to stay in them, but you need to have the technicals lined up as well.

    So the two best kinds of people that I feel that are going to be able to invest in the cannabis sector is traders who can manage risk and catch the meat of the move, because cannabis, when it moves, the momentum will carry for quite a while. But then, when it breaks, you need to get out, you're never going to call the top or the bottom. But then the other investor that's gonna be really good at this is somebody that's either like a crossover or startup investor that understands that some of the companies are probably going to go to zero, but other companies are going to 20 times 50 times or more. So what you're going to do is you're going to build a basket of stocks, and you're going to understand that some of them aren't going to make it hopefully you get out before they go to zero since they are publicly traded.

    Also, if you are thinking about like allocating to the sector, you know, depending on your risk tolerance level, you should think about it kind of like crypto, right? Like a lot of people want to still have allocations to crypto, but they really have a hard time stomaching the volatility that's in it, cannabis is exactly the same way. So you should look at it as "what can I stomach?" A lot of investors I know that are a little bit more conservative. Look at it from like, maybe we'll put 2% or 5% into this risky asset. Now you probably want to divide that up. So if you want to have some risky exposure to cryptocurrency, Cannabis, all these other areas, you will want to divide that up within whatever allocation in your broader portfolio, say maybe 10%. That way you can stomach that volatility and a minus 50% drawdown isn't going to affect your other portfolio as much as your, you know, if you're at 25% say allocation to risk.

    Patrick Lane (Benzinga)
    Well, man, I appreciate that man. And the reason I ask is that, for a lot of the investors watching, is this industry is really interesting for all types, right? And provides opportunity for all types. It's your risk tolerance one, and I think we all know that. But then it's just your strategy, whether you're going to be in long and you're just going to figure out, all right, some of these are going to miss and that's okay. But the ones that make it will be will be big winners, ideally. You know, and ideally the other the other set of the folks that are that have all the time in the world to jump in there and trade.
     
    Matthew Timpane CMT (Schaeffer's Investment Research)
    Right, exactly. So you kind of got to make up who you're going to be when you're investing in this space, and then just follow the plan accordingly. And that's, that's the big thing about it. Otherwise, you know, you could experience pain, so you just want to be careful and decide who you are and what best fits your personality as well.
     
    Patrick Lane (Benzinga)

    And no one wants to experience pain, so I really appreciate that. Awesome. So Matt Timpane, Market Strategist at Schaeffer's Investment Research. Thank you, sir. It's always a pleasure to have you and the Schaeffer's group with us. I thank you again.

    Matthew Timpane CMT (Schaeffer's Investment Research)
    Feel free to come over to www.schaeffersresearch.com and check us out we always got good material being put out there regarding options industry, give us a follow on Twitter at @schaeffers and @mtimpane we are always willing to engage and we're always trying to put great content out there for everyone.

    Here is the full recording of Timpane's presentation for your convenience:

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