Welcome back to our weekly series, Schaeffer's Cannabis Stock News Update, where we recap what happened in the world of marijuana stocks last week, and look ahead to how the cannabis industry will continue to develop in the 2021.

Investor interest in the cannabis industry is growing at an explosive growth rate, and the leading players continue to break through legal barrier after legal barrier, especially in the United States. More than 40 U.S. states legalized recreational and/or medical marijuana by the end of 2020. Now, more and more companies are starting to see the opportunity in cannabis cultivation, marketing, distribution, and technology.

On March 22, a top New York senator  said that lawmakers and the governor have successfully resolved an outstanding issue in marijuana legalization negotiations in New York related to impaired driving. This sets the stage for a formal introduction of a new bill within days.

Here is a quick roundup of major cannabis stock news this week:

Akerna (NASDAQ:KERN), developer of the cannabis industry's first seed-to-sale enterprise resource planning (ERP) software technology (MJ Platform®), reported its unaudited financial results on March 22 for the quarter ending on December 31. Total revenue was $4.1 million, up 24% year-over-year. Total revenue reported was$4.1 million, also up 24% year-over-year.

GrowGeneration Corp. (NASDAQ:GRWG) confirmed its eighth acquisition in 2021, this time purchasing the wholesale agriculture platform, Argon.io. The platform developed by Argon.io offers greenhouses, controlled environmental systems, HVAC, and industrial cannabis gear. According to GrowGeneration CEO, "The Agron.io platform is a strategic and exciting addition to our portfolio and comes with a highly skilled team of customer service experts trained to help growers navigate the complexities of planning, growing and sustaining a commercial agriculture facility." He further stated, "By joining forces with GrowGen, we can reach even more commercial growers with enhanced services, competitive pricing and drop-shipping from the nearest GrowGen distribution center."

22nd Century Group, Inc. (NYSE:XXII), a leading plant-based, biotechnology company focused on tobacco harm reduction, very low nicotine content tobacco, and cannabis research,  congratulated Xavier Becerra on March 19 as the new Secretary of the U.S. Department of Health and Human Services (HHS).

Greenlane Holdings Inc. (NASDAQ:GNLN), in a joint venture with Berner entited VIBES Fine Rolling Papers, launched a new brand of organic hemp rolling papers and cones. The launch features papers that are 100% organic hemp fibers that come in three different sizes. According to Greenlane's CEO, "Greenlane is proud to work alongside Berner to produce new and innovative products for VIBES. Discerning connoisseurs that demand nothing short of the finest quality are top of mind when we develop products like the VIBES Organic Hemp line."

The Russell 2000 Index (RUT) has been on a tear in the last 12 months. To the uninitiated, choosing small-caps may seem like a daunting task akin to throwing darts at a dart board. Against this backdrop, Benzinga sat down with Senior V.P. of Research Todd Salamone at Schaeffer’s Investment Research to talk about some of the implications of the RUT's rise and the importance of education in order to make informed investment decisions.

Below is an excerpt of the article, which can also be found here.

Small-cap stocks have been soaring over the past few months, with the small-cap Russell 2000 Index (RUT) outperforming large-cap indexes such as the S&P 500 and Nasdaq 100 that are relatively flat on the year.

The Russell 2000, which tracks 2,000 small-cap companies, is up 18.5% year-to-date as of March 18, 2021. In comparison, the Nasdaq 100, which is made up of the 100 largest non-financial companies in the technology-heavy index, is up 1.2% YTD. Although still early in 2021, this marks a distinct change from previous years in which value-oriented small caps have struggled to garner quite the same investor attention as more high-profile, performance stocks.

In further examining the rise in small-cap stocks, Senior Vice President of Schaeffer’s Investment Research Todd Salamone spoke with Benzinga regarding his thoughts on the rise of small caps, as well as, what small-cap companies investors should keep an eye on and how investors can position themselves for an economic rebound.

Salamone also attended the recent Benzinga Global Small Cap Conference, which took place from March 24-25, to share the following analysis as well as additional insight with attendees. The two-day conference featured presentations from executive leadership of small-cap stocks, specifically in the biotech industry. 

Will The Small-Cap Rally Continue?

Small-cap stocks have had a remarkable run during the pandemic. As a result of this growth, many traders have been left to question whether or not this trend will continue in the months ahead. 

According to Salamone, the technical picture of Russell 2000 and ETFs like the iShares Russell 2000 ETF (IWM) 1.05% does suggest that the rising trend will likely continue.

At the end of 2020, the iShares Russell 2000 ETF (IWM) experienced a breakout above the $175 area, which is double the $86-$87 resistance level that was in place from 2007-2012, Salamone noted. 

“In fact, the $175 area marked a huge IWM peak in late 2018 and this level didn’t get taken out until late last year. In other words, there was a lot of profit-taking as buyers that bought the 2013 breakout re-assessed risk from 2018 into late 2020,” said Salamone.
  
He also noted that long-term breakouts such as this one are usually long-lasting, “especially when there are still many pessimists, which was the case in late 2020 as was evident by the huge short interest on IWM components.”

Companies To Watch

Schaeffer’s Investment Research favors companies that display strong price action while sentiment measures indicate some lingering doubt. Salamone noted that this skepticism represents future buying power as the market is proving naysayers wrong who might be forced to eventually capitulate.  

Given this preference, here are a few names on Schaeffer’s radar in the small-cap space:

Shake Shack, Inc. (NYSE:SHAK) is an American burger chain with about 275 locations worldwide and a $5 billion market cap. Given the number of locations and current market cap, this leaves room for tremendous growth potential for the company as the world continues to slowly step out from under the shadow of the pandemic. In 2021, the stock has hit new all-time highs, with current YTD performance up 40% as of March 18, 2021. The company also has the potential to garner future positive sell-side attention, as only four of the 23 analysts following SHAK rate it a buy. 

United States Steel Corporation (NYSE:X) and Alcoa Corp (NYSE:AA)
U.S. steel is an American integrated steel producer and Alcoa is an American industrial company as well as the world's eighth-largest producer of aluminum. Both companies have market caps of around $6 billion and low analyst ratings, which provides them with a lot of upgrade potential. 

Aspira Women’s Health (NYSE:AWH)
Develops gynecologic tests for identifying ovarian cancer and other gynecologic diseases. The company has a market cap of less than $1 billion. They expanded network access in October. AWH had a multi-year breakout in late January above the 2011 intraday peak but shares were still well off from their all-time high in 2003.

Sonos Inc (NASDAQ:SONO)
A developer and manufacturer of wireless, multi-room audio systems. The company has a $5 billion market cap. In November, the company announced a buyback plan and shares gapped higher in mid-February on earnings. Shares are currently surging both YTD and year-over-year, up 72% and 479% respectively.  

Economic Rebound

Speaking on small caps holistically, Salamone singled out the iShares Russell 2000 ETF (IWM) as offering diverse exposure to the small cap segment. The ETF is comprised of stocks throughout 11 different sectors, with the five biggest areas of exposure being a mix of growth and value segments like health care (the largest), consumer cyclicals, industrials, financial services, and technology (the smallest).

Salamone noted that investors may want to keep these main sectors in mind when putting together their portfolios.

“The interest rate environment in recent months has favored financial services and industrials, and consumer cyclicals are a great way to position yourself for an economic rebound.”

As the harrowing date of the pandemic anniversary has come and gone, bond yield fears have continued to grip Wall Street. Even after last week's Fed meeting -- which saw Fed Chair Jerome Powell reinforce the central bank's dovish policy for at least two years -- the 10-year Treasury yield jumped 11 basis points to 1.75% promptly one day later, the highest level since January 2020.

The push-and-pull of bond yields the last month has created a level of choppiness in tech, alternative energy, and other growth success stories. Here at Schaeffer's, one of the unique sentiment indicators we track is the 10-day equity-only buy-to-open put/call volume ratio -- compiled by our quantitative analysis team using data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This metric reflects the number of puts bought to open, relative to calls, on the three major options exchanges over a roughly two-week trading period.

By narrowing the focus to equity options, we eliminate a fair amount of hedging activity, which often centers around indexes and exchange-traded products -- thereby resulting in a truer sentiment read, where a skew toward puts can be generally considered as "bearish," and a preference for calls "bullish." Likewise, focusing on a 10-day time frame allows us to drill down on very recent option-buying activity, without getting bogged down by the "noise" of single-day data. And with short interest data released on delay every two weeks, we think this is a good indicator of real-time sentiment in terms of measuring how traders are playing the equity market.

But given the "pandemicversary" it felt right to look back and see what these ratios are telling us now, versus what they told us on March 18, 2020, when the Cboe Volatility Index (VIX) spiked to 85.47. For the S&P 500 Index (SPX), the 10-day equity-only buy-to-open put/call volume ratio stood at 0.77. It closed on Thursday at 0.42, bouncing after probing new lows near 0.30. For the Nasdaq-100 Index (NDX), it stood at 0.76. Now, like the SPX ratio, at 0.51 it's bounced off lows and is moving higher toward its early November high coinciding with the 2020 U.S. Presidential election.

Here's where it gets interesting. For the VIX, the 10-day equity-only put/call volume ratio stood at 1.04 on March 19, 2020, one day after hitting its top. Now, its 0.70. The "fear gauge" tagged a new annual low of 18.95 earlier on Thursday, a far cry from those forays into 80, 12 months ago. But consider those p/c ratio levels for the VIX back in late October and early November. They clearly were much more responsive to an election than they were to the pandemic, or the bond yield drama we currently find ourselves in.

The context provided here isn't meant to stack up the bond yield panic we're currently wrangling with against the onset of the coronavirus pandemic of 2020. Instead, it should serve as a reminder that as long as speculators are increasingly negative -- and stacking up their bearish options bets accordingly -- the net effect will be a headwind for stocks that could hamper recovery attempts. Instead, it makes sense to wait for a rollover in the ratio, which would indicate that options players are backing down from climactic levels of pessimism, and pressure on stocks is lifting.

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, March 21.

The shares of Nike Inc (NYSE:NKE) are coming under pressure today, after the shoe and apparel company received widespread criticism on Chinese social media due to its statement expressing concern over reports of forced labor in Xinjiang, and insisting that it does not source cotton from the region. The massive backlash on Chinese websites such as Weibo (WB) led well-known Chinese actor Wang Yibo to terminate his contract with Nike, and sent U.S.-listed shares to their lowest level since November earlier today.

The stock was last seen down 3.7% at $128.27. The equity has been in selloff mode since its disappointing earnings report last week, which sent the equity pulling back from the $146 region, an area of consolidation for NKE's highs for the better part of 2021. Today's dip has the security dropping below its 140-day moving average for the first time since last May, though the 200-day moving average sits just below as a potential net, should Nike stock continue its journey southward. 

Nike's options pits are sounding off, too. So far, 68,000 calls and 99,000 puts have exchanged hands. Most popular is the April 141 call, followed by the 115 put in the same monthly series, with positions being opened at both. This suggests buyers of the latter are speculating on even more downside for NKE by the time these contracts expire on April 16.

Next week, there's plenty of economic data to digest as investors say goodbye to March and usher in a new month. The week will start quietly, highlighted by the Case-Shiller national home price index. A deluge of data will follow, including more unemployment numbers, as well as the Markit manufacturing purchasing managers' index (PMI), and the ISM manufacturing index. The earnings slate will be relatively clean, though Walgreens Boots Alliance (WBA), Cal-Maine Foods (CALM), CarMax (KMX), Chewy (CHWY), lululemon athletica (LULU), and Micron (MU) all have quarterly reports due out. While economic data will continue to roll in toward the end of the week, markets will be closed on Friday in observance of the Good Friday holiday. 

Below is a list of key market events scheduled for the upcoming week. All economic dates listed below are tentative and subject to change.

The week will start out relatively uneventful, with nothing due out on Monday, Mar. 29. 

On Tuesday, Mar. 30 investors will pore over the Case-Shiller national home price index, and the consumer confidence index. 

The ADP employment report for March, as well as the Chicago PMI, and pending home sales data are all due out on Wednesday, Mar. 31. 

The new month will start on Thursday, April 1, bringing a bevy of economic data with it, including initial and continuous jobless claims, the Markit manufacturing PMI, the ISM manufacturing index, data on construction spending, and motor vehicles sales. 

Nonfarm payrolls, the unemployment rate, and average hourly earnings will wrap up the week on Friday, April 2, though markets will be closed for Good Friday.