Stocks

How to Play the Coming Cannabis IPOs

By Adam O'Dell  |  June 11, 2019

Greenlane Holdings Inc. (GNLN) recently made its initial public offering (IPO) on the Nasdaq. It debuted on April 18, just before cannabis enthusiasts’ annual “420” day — quite apropos, of course, as Greenlane is a leading supplier of headshop accessories, ranging from glass water bongs and “herb” grinders, to high-tech vaporizers for both nicotine and, well, whatever leafy green material you’d like.

Greenlane’s IPO was allowed because the company doesn’t actually sell cannabis.

“Plant-touching” cannabis companies are currently forbidden from listing on major U.S. exchanges, like the NYSE or Nasdaq, since U.S. Federal law still prohibits the sale of cannabis. But Greenlane is a “no-touch” company. It’s been legally selling legal smoking and vaporizer accessories since 2005.

I think Greenlane is a solid company that will prove to be a lucrative picks-and-shovels play on the burgeoning cannabis industry. So it’s firmly on my radar as I’m working to build a portfolio of “seed” investments in cannabis companies (more on this soon).

But I really hope you didn’t buy Greenlane’s IPO…

Shares of GNLN opened on April 18 at $29. Then they immediately fell to a low close of $13.34 on May 2 — a 54% drop in just 10 days!

 If you read my advice on “How to Avoid an IPO Landmine,” you know that a waiting period and trend rule can work wonders toward helping you sidestep the initial carnage that many IPO stocks suffer through… keeping you cool, calm and collected while everyone else is caught up in the frenzy.

That’s certainly been the case with Greenlane’s stock. It’s proven to be a falling knife so far. And I won’t be recommending it to my readers until it’s already trending higher by a significant degree.

Now, I realize that feels counterintuitive. We’re taught to “buy low and sell high.” So buying something after it’s already moved significantly higher can feel foolish.

But would you believe it if I told you that you can wait for Greenlane’s stock to double in price, and then still buy it at a discount compared to its IPO?

Let me show you what I mean…

Buying After a Double

Here’s a chart of Greenlane (GNLN):

The yellow line at $29 shows you what you would have paid for GNLN when it opened on April 18.

The red dotted line at $13.34 tracks the stock’s lowest close.

And finally, the white dotted line, at $26.68, shows where the stock will be trading after it increases 100% (“doubles”) from its lowest close.

Think about that… By choosing not to purchase this IPO on Day 1, you first avoided a 54% drop. And then, even if you decided to wait until Greenlane proved capable of doubling its share price — a sign of strength, and no small feat — you still could buy into the stock at a discount to its IPO price!

That’s pretty incredible, don’t you think?

A Common Occurrence

Of course, Greenlane may be unique in that its one of a small handful of cannabis companies listed on a major U.S. stock exchange (for now). But it’s not unique in giving patient investors a “discount-to-IPO” opportunity somewhere down the road… after the stock has proven its strength.

Consider Snap Inc. (NYSE: SNAP). Snap’s IPO on March 2, 2017 was $24 a share. But for all the hype the IPO drew, the stock got off to a rough start…

It was trading for less than $24 by Day 3… and it hasn’t traded above that debut price ever since!

Have a look:

Here again, the yellow line indicates SNAP’s IPO price of $24. The red dotted line tracks the stock’s lowest close. And the white dotted line tracks the price at which the stock will have doubled its lowest close (and then turning green once that double is achieved).

Watch how this played out for anyone who said, “You know what, I’ll wait until shares of SNAP double… and then I’ll buy in.”

 The stock would have been avoided throughout 2017 and 2018, since it failed to double in price…

On December 21, 2018, the stock fell to an all-time low of $4.99. Now, you wouldn’t have known at the time that the stock’s decline had ended. But throughout January, as the stock began to climb higher, you would have known that your targeted entry price was $9.98 (i.e. $4.99 x 2).

And eventually, on February 25, shares of SNAP closed at $10.12 — marking a 100% increase, or double, from its all-time low close of $4.99.

All told, you could have bought SNAP then for $10… for a 58% discount to its IPO price! And that’s after avoiding the stock’s two-year, 79% decline!

The Best Indicator I’ve Ever Found

 I’ve been doing this for a long time. I’ve researched and tested hundreds of indicators, looking for the best way to separate stocks into “buy,” “sell” and “avoid” buckets. And while it’s deceptively simple — and thus overlooked by many — a stock’s trend is generally the best indicator of its strength.

When a stock is already trending higher; your odds of success are higher, and your risk is lower.

When a stock is falling; your odds of success are lower, and your risk is higher.

It’s as simple as that!

And that’s why a trend rule is a “must” for me.

I’ve incorporated trend rules into all of my systems, including the ones I use in my Cycle 9 Alert, 10X Profits, and 7-Figure Trader services. I’m also working on a new service targeting the high-growth cannabis industry. It, too, follows a trend rule… and Greenlane’s IPO is the perfect example of why that’s so.

The cannabis industry is full of hype. And dozens of new cannabis companies will IPO in the coming months and years.

Greenlane is among the first of many to come — and as I said, I expect it to be a great picks-and-shovels play. But I won’t be recommending it to my readers until the stock first establishes a significant uptrend.

That’s when we’ll know it’s safe to buy in.

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Adam O'Dell

As Chief Investment Strategist for Dent Research, Adam O’Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with minimum risk. He achieves this with his perfect blend of technical and fundamental analysis. Tactically, he does extensive back-testing and probability-based research. It’s the ultimate partner to the exhaustive research that Dent Research co-founders Harry Dent and Rodney Johnson do in the exciting realm of the new science of investing.

Adam is also the executive editor of our hugely successful trading services, Seven-Figure Trader, Cycle 9 Alert and 10X Profits.

He has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high-profit potential.

Aiming to find the best opportunities across all asset classes, Adam expanded into the commodities, equities and futures markets. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. MORE FROM AUTHOR