It’s an interesting time for the cannabis industry. While sector-related companies like GrowGeneration (GRWG) incur major viability questions, such concerns have been set aside due to the political narrative. For speculators who can handle day-to-day volatility risk, GRWG stock presents a possibly attractive framework.
First, let’s be real about GrowGeneration’s objective print. In the company’s fiscal fourth quarter – released March 13 – the hydroponic solutions provider reported a loss of $27.3 million. On a per-share basis, that came out to a loss of 44 cents. Adjusted for impairment costs, the red ink landed at 18 cents per share.
Unfortunately, the results failed to meet Wall Street’s expectations, which called for a loss of 12 cents per share. However, on a positive note, the company posted revenue of $49.5 million, beating the consensus target of $46 million.
Unsurprisingly, investors didn’t respond well to GRWG stock following the Q4 disclosure. That’s mainly because management has guided the current fiscal year’s revenue to land between $205 million to $215 million. Even at the top end of the estimate, the projected figure would fall noticeably short of 2023’s tally of $225.9 million.
Still, that’s also why the political talking point is so important. Recently, Vice President Kamala Harris called on the U.S. Drug Enforcement Administration (DEA) to act quickly regarding the rescheduling of marijuana; that is, a shifting from a higher tier of enforcement or regulation to a lower one.
Fundamentally, the request is a matter of social importance, freeing up judicial and law enforcement resources to address serious crimes. Cynically, rescheduling and thus decriminalization of simple cannabis possession potentially opens a broader voting base for the Biden administration.
Either way, cannabis and industry-related enterprises like GrowGeneration should be beneficiaries of this political tailwind. That’s why GRWG stock – despite the high risks – is awfully enticing.
Unusual Options Activity Highlights the Battle of Control Over GRWG Stock
Following the conclusion of the March 25 session, GRWG stock represented one of the top highlights in Barchart’s screener for unusual stock options volume. This is one of the more important screeners as it shows where the smart money is focusing their attention.
Specifically, total (new) volume reached 5,800 against open interest (contracts that have yet to be closed out) of 16,136. Notably, Monday’s volume represented a 593.78% lift from the trailing-month metric. Further, call volume dominated put volume, 5,759 contracts to 41.
On paper, this pairing yielded a put/call volume ratio of 0.01, appearing to significantly favor the bulls. However, a peak into Barchart’s options flow screener – which focuses exclusively on big block transactions likely placed by institutions – reveals that most of the call options featured bearish trading sentiment.
That implies that most of the calls were written or sold calls; that is, institutional traders appear to be placing bets that GRWG stock will not rise above the strike prices of the derivative contracts in question. In terms of the highest volume, the Apr 19 ’24 3.00 Call – which saw volume of 1,960 contracts – represents the “highlight.”
That’s a notable area of possible resistance. According to Barchart’s Trader’s Cheat Sheet, there are several resistance levels near the $3 price point:
- Price 3 Standard Deviations Resistance at $2.71.
- Pivot Point 1st Resistance Point at $2.75.
- Pivot Point 2nd Level Resistance at $2.97.
- Pivot Point 3rd Level Resistance at $3.22.
Given the multiple layers of resistance that GRWG stock faces, GrowGeneration is a risky proposition – let’s not mess around here. However, if shares could somehow break above $3, the game could be blown wide open.
Without the $3 overhang imposed by the aforementioned sold call options, the next level of heavy resistance clocks in at $5. Theoretically, the move between $3 to $5 would give bullish speculators room to run for about 67% profits. As I said earlier, that’s enticing.
A Play on Political Narratives, Not on the Financials
To be clear, GRWG stock – while attractive for market gamblers – is a play on the political narrative. Financially, as we saw from the Q4 earnings print, the situation really isn’t that rosy. Plus, with revenue projected to fall in fiscal 2024, that’s not exactly what you would call a confidence-inspiring long-term investment.
Certainly, as we approach the November elections, it’s important for bullish speculators to be ready to exit the position. That means that if you’re considering the Jan. 17, 2025 calls, you shouldn’t wait till close to expiration. By October, the buy-the-rumor, sell-the-news dynamic could become a factor to contend with.
Until then, the Biden administration will presumably do everything it can to convince voters of a second term. So, the prospects do look tempting for GRWG stock over the next several months.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
