It is Very Expensive to Hedge Cannabis Stocks

It is Very Expensive to Hedge Cannabis Stocks

It is Very Expensive to Hedge Cannabis Stocks


Stock investors caught up in the cannabis craze has driven marijuana stocks to record highs, options traders are paying the most ever to hedge against a fall.

Skyrocketing marijuana stocks have driven the $560-M ETFMG Alternative Harvest ETF (MJ), up more than 60% since mid-August. At the same time, the cost of options to protect against a 10% drop in the fund has surged to an all-time high relative to those betting on gainers of the same magnitude.

The rally in the ETF, which last year changed its focus from Latin America real estate to cannabis-related stocks, comes as marijuana companies surge ahead of the full legalization of weed in Canada next month.

Canopy Growth Corp., the ETF’s biggest holding, has 2X’d in value since mid-August when Constellation Brands Inc. announced a $3.8-B investment in the cannabis grower.

Tilray Inc.(NYSE:TRLY), the fund’s 3rd-largest holding, has increased more than 700% since its debut just 2 months ago.

The ETF (MJ) rallied as much as 12% on Tuesday to 41.50, a record high, compared with a 0.6% gainer in the S&P 500 Index (SPY). The marijuana fund’s 30-day historical volatility rose to the highest marks since January Vs the benchmark S&P 500 index

Tilray gained as much as 28% Tuesday after the British Columbia-based cannabis company received approval from the US government to import medical marijuana into the country for a clinical trial.

The House Judiciary Committee last week passed a bill to require the Justice Department to issue at least 2 more licenses to US facilities to grow marijuana and cannabis for research.

Marijuana compounds have been imported for clinical trials before, including by Britain-based GW Pharmaceuticals, which won approval this year to sell its purified CBD capsule, Epidiolex, to treat severe forms of epilepsy, the 1st cannabis drug approved by the US Food and Drug Administration

The news lifted the entire cannabis sector: Aurora Cannabis Inc. climbed 7.3%, Canopy Growth advanced 7.5% and Cronos Group Inc. jumped 19%.

Symbol Last Trade Date Change Open High Low Volume
NYSE:TLRY 155.1 18 September 2018 34.91 134.65 155.1 132 18,837,480
HeffX-LTN Analysis for TLRY: Overall Short Intermediate Long
Very Bullish (0.60) Very Bullish (0.69) Very Bullish (0.62) Very Bullish (0.50

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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