Are Cannabis Stocks a Good Investment Compared With Cryptocurrencies?

Several states in the U.S. have confirmed cannabis stores as essential due to the component of medical marijuana. Nevertheless, the majority of stocks are trading at or near all-time lows, despite indications that the sector might not be impacted by the economic shutdown.

In this article, we will take a look at the performance of major cannabis indices along with individual companies, and compare their performance to that of cryptocurrencies.

Marijuana Index

One of the biggest indices in the marijuana industry is Horizons Marijuana Life Sciences Index (HMMJ), which was created on April 4, 2017 and has net assets of $307,214,803. At least from a technical analysis perspective, the outlook looks quite bleak. Measuring from Jan. 1, 2019, HMMJ has decreased by a massive 58%, currently being at $6.4. In addition, the index has been on a downward trend since March 25, 2019, or for the past 399 days, following a descending resistance line. On a positive note, the weekly RSI has been generating bullish divergence, an occurrence which often transpires prior to trend reversals and could eventually initiate an upward move. However, the index has a very long way to go in order to make up for previous losses. Even if a breakout were to occur, it would initially be a retracement, until the price makes a higher low and possibly begins a new upward trend.

The 2020 performance of the index has not fared a lot better, since the price has decreased by a massive 30% since the beginning of the year. Furthermore, even though it began an upward move on March 16, it is clearly still in the retracement phase, since it has yet to move even above the 0.382 fib level of the entire downward move.

Comparison With Cryptocurrencies

In contrast, the total cryptocurrency market cap has fared much better. Since the beginning of 2019, the total crypto market cap has actually increased, doing so by 17%. In addition, the downtrend began 106 days later than in HMMJ, a time period in which cryptocurrencies made considerable gains, at one point (July 2019) being 160% higher than in the beginning of the year. Also, there was a reactionary upward move in December of the same year, which broke the downward trend and caused the total market cap to increase. The second downward trend began on Feb. 18, 2020 and is still ongoing.

The movement is 2020 has been similar, with the same pattern being in place in which the crypto price begins a downtrend after HMMJ does. In this case, it was 33 days afterward, instead of 106 as was the case in 2019. However, the upward moves have been more pronounced in the crypto market cap, causing it to be a positive 7% relative to the price on Jan. 1, 2020, as opposed to -24%, as is the case with HMMJ.

Potential Winners

Despite the downward trend that is in place in almost the entire industry, not all marijuana related stocks have such a bleak outlook. Acreage Holdings (ACRGF) has decreased significantly in 2020, doing so by 72%. However, it has created a double bottom at the current price of $1.6, which is combined with bullish divergence in the RSI. The double bottom is a strong reversal pattern that gains even more significance when combined with the RSI reading.

A similar pattern is seen in the price of Organigram Holdings (OGI). It has decreased by 35% since the beginning of the year, being twice less volatile than ACRG. In addition, it has also created a double bottom,which is combined with bullish divergence in the RSI. Therefore, the outlook is almost identical to that of ACRG, with the only difference being the considerably lower decrease prior to the bottom.

A breakout above the current descending resistance line could trigger a very rapid price increase that causes the price to break out of the current downward trend.