The cannabis stocks that are high on alt data
Discover how alt data can help your firm incorporate alt data insights in investment strategies, and profit from data trends that are influencing securities volatility, and retail investor behaviour.
In this article we will discuss:
- Which pot stocks are on the way up?
- What factors are driving volatility, and growth?
- The alt data connection
Which pot stocks are on the way up?
As we ease into 2021, stock market volatility is showing no sign of slowing down. Many sectors are experiencing erratic highs, and lows. One such industry is Marajuana. Let’s take a quick glance at some of the leading cannabis securities and how they have fluctuated recently:
Tilray (TLRY) – $8.26 – $63.91
Aphria (APHA) – $8.80 – $33.37
Sundial Growers (SNDL) – $0.56 – $2.95
Aurora Cannabis (ACB) – $8.31 – $18.92
Canopy Growth (CGC) – $24.64 – $52.17
A quick look at these stock valuation graphs shows that all 5 of these major cannabis stocks have experienced growth since the onset of 2021, albeit with very distinct peaks.
What factors are driving volatility, and growth?
Institutional investors who are actively involved in trading medicinal plant-based securities and/or other commodities, can’t help but asking:
- What is driving all this volatility, and growth?
- Is there a way for our investment portfolio to find a correlation between real-world events and these fluctuations?
- Can we incorporate these insights at the day-to-day trading/operational level?
Let’s start by looking at the three major factors that influenced the value of marajuana equities. Please also keep in mind that these are factors that are not exclusive to this sector, meaning the ability to harness this type of data can have implications on your different portfolios, and exposure groups.
One: Mergers and acquisitions [M&A]
M&As, Initial Public Offerings (IPOs), as well as seeking creative ways of bringing companies experiencing legal barriers to market, can have big implications on stock valuations. A good example of this is Tilray’s December merger announcement with their competitor, Aphria. This drove both company’s stock prices up as consolidation is perceived to strengthen their ability to corner certain parts of the cannabinoid market in the U.S. and The United Kingdom.
As such, investment groups collect alternative data which may serve as a strong indication that one of the above financial funding or restructurings are taking place. Types of alternative data in this instance can include:
- SEC filings data
- Press release data
- LinkedIn data
- Publicly available legal M&A documentation
Two:Social media sentiment
Most people on planet earth, and especially professionals involved in finance, have heard of ‘The Big-Short Squeeze’ in which members of the Reddit group WallStreetBets (WSB) encouraged one another to buy, and hold stocks like GameStop (GME), and American Multi-Cinema (AMC). Thereby driving the value up purely on the basis of social sentiment, not strictly based on corporate financials. This is part of the era in which retail investors using platforms like Robinhood, which have a very low entry threshold, can ‘legally manipulate’ markets in the same way that hedge funds have been doing for years.
Once this group was done having their way with GME, and AMC, it was on to the next target which among others included Cannabis plays.
Investment houses that started collecting social sentiment data after the first shock waves over GME were the clear beneficiaries. They were able to discern a number of patterns which they were able to act on, and profit from, including the fact that:
- Sundial Growers was the most popular stock mentioned on WSB
- GME came in in second place in terms of frequency and popularity
- While Aphria, and Tilray took slots 3, and 4 in terms of mentions, and popularity
- Canopy Growth, and Aurora Cannabis clocked in 11th, and 12th place
The third group of alternative data which had an influence on cannabis stock valuations is data points, and news pertaining to legal tailwinds. Joe Biden winning the elections, as well as having Democrats taking control of both houses of Congress was good news for federal decriminalization, and legalization. Any news stories, press releases, information leaks, social media posts etc pertaining to federal legalization had an impact on cannabis securities valuations. This is due to the fact that favorable legislation would open up the cannabis market to a much larger 50-state-wide customer base.
For example, when Chuck Schumer (D-NY), Cory Booker (D-NJ), and Ron Wyden (D-OR) jointly issued the following statement:
“…Ending the federal marijuana prohibition is necessary to right the wrongs of this failed war and end decades of harm inflicted on communities of color across the country…”
This was viewed favorably by investors in terms of cannabis securities and had an influence on stock prices. But there can be hundreds of statements, stories, and press releases in any given week, and investment houses that collect these can ‘buy the rumor, and sell the news’, as the age-old adage goes.
The alt data connection
What all three of the above have in common is that these data sets empower portfolio managers, and investment algorithms to:
- Get real-time information
- Stay ahead of the curve
- Buy, and sell securities based on social sentiment , legal developments, and business agreements
Instead of surrendering to random market fluctuations, and discovering probable correlations in hindsight, you can now start making data-driven decisions.