Earlier today, United States Attorney General Jeff Sessions issued a memo regarding the enforcement (or lack thereof) of federal laws regarding cannabis. The memo has already caused a U.S. cannabis stock sell-off, and many are wondering if it will continue throughout the rest of the week.
Today’s U.S. Sell-Off
To state the obvious, Jeff Sessions is the U.S. Attorney General. That means that his control is confined to the United States, and only the United States! Despite this, many Canadian licensed producers sold off in trading today, causing confusion amongst participants in our forums and beyond.
It makes perfect sense why cannabis stocks like Terra Tech Corp. (OTC:TRTC) sold off, as they are totally U.S.-focused. When it comes to cannabis companies though, each one is totally different. Thanks to the recently launched cannabis-focused ETF, correlation amongst many of these names is at an all time high, which has caused many companies to move in lockstep that shouldn’t have.
So, Why Did Canadian Companies Sell Off Today?
Correlation aside, the answer in many cases is profit taking. Some of the Canadian licensed producers have risen so much in recent weeks and months, that there’s no wonder people want to take some gains off of the table. In other cases, the answer is geographic diversification. Some Canadian-listed cannabis companies also have operations or investments south of the Canadian border, which caused investors to panic.
While geographic diversification may have hurt some cannabis stocks today, it could save your portfolio tomorrow!
Geographic Rotation and Diversification
The concept of sector rotation is essentially moving investment dollars from one sector to another as markets move through various stages of an economic cycle. Simply put, some sectors perform better in an booming market, and some perform better in a down market.
At the current stage in the worldwide cannabis legalization cycle, some geographic regions are doing better than others. So what do we mean by geographic rotation? In this case, it means avoiding the cannabis companies that Jeff Sessions can ruin by moving investment dollars towards cannabis companies targeting countries other than the U.S.
Where to Look?
The quick answer - Australia.
While Jeff Sessions was drafting his memo, Australian cannabis companies were celebrating the country’s decision to expand the existing Australian cannabis cultivation and production industries through worldwide exports.
It should be noted that this is not a recommendation to buy or sell any security. Before jumping into or out of any company, be sure to consult your professional financial advisor. Investing time in due diligence can save a lot of headache and money down the line.