In our Emerald Health Therapeutics stock forecast 2019 we tipped this cannabis stock as a great buy opportunity for 2019. However, its price has been falling recently. There is even more downside ahead. Are we still bullish on Emerald Health Therapeutics, and does it remain our top cannabis stock pick as said in our Cannabis Stocks in Canada forecast 2019?
Let’s start by revising what we said earlier.
We are quite excited about Emerald Health Therapeutics’ stock because of two reasons: it is a producer that is growing (expanding) very fast and it combines production with health products.
Our focus remains on the production capacity and speed of expansion. Visibly Emerald Health Therapeutics is doing a great job when it comes to this, supporting a bullish Emerald Health Therapeutics stock forecast for 2019.
For now, we stick to our first bullish price target of $38, which is our base case Emerald Health Therapeutics stock forecast for 2019.
In recent weeks, though, the whole cannabis sector has been falling. And we find ourselves in a situation of weakness for the sector. Moreover, last week, Emerald Health Therapeutics has shown relative weakness.
That’s certainly not what we want to see as 2019 kicks off.
What to make out of this?
Emerald Health Therapeutics: chart suggests more short term downside
Fundamentally, we have not noticed any material change against a couple of months ago when we wrote our forecast. That’s why we are left focusing only on the chart.
Below is an up-to-date chart which provides more detail than the one we used in our previous article.
Visibly, Emerald Health Therapeutics is moving in a falling channel. It does not seem very likely, if this falling channel is the dominant trend right now, that the decline will stop at current levels. It would be in the middle of nowhere. The only scenario in which this might happen is that it would set a higher low against this summer in which case there is a horizontal channel developing.
Let’s be more bearish for the time being, and assume the falling channel is the dominant trend. Where will the decline stop?
Most likely, its downside target is likely where horizontal and diagonal channels will meet. In other words it may fall to $1.80.
Are we still bullish with this bearish short term outlook? Yes we are long term bullish. The fundamentals are great for the cannabis sector. As said this week, the cannabis suppliers are not able to keep up with demand, primarily because of slower than anticipated production. Authorities in Canada even talk about a ‘national shortage‘ which might take several months until this issue is resolved. “After more than a month of legal recreational marijuana sales in Canada, provinces say stores are still having trouble procuring enough pot from producers that have built large valuations on promises of selling tons of the drug,” says MarketWatch.
Short term this may hurt the producers, and their stock prices. However, mid to long term, they have a great outlook. We also expect the rest of the U.S. to legalize cannabis which means that the producers that will succeed producing high level of quantities at low cost will have truly great prospects.
As long as we do not see signs of failure in the production capacity of Emerald Health Therapeutics we remain firmly bullish for the long term. The flipside? If they would report that their production is failing we have to revise our thesis!
