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'Rally in the wrong' cannabis stocks - advisor

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As a Reddit forum fuels a rally in cannabis stocks, Gerber Kawasaki CEO Ross Gerber tells Reuters' Fred Katayama why investors should avoid Canadian cannabis shares and instead buy U.S. pot stocks.

Video Transcript

FRED KATAYAMA: The indexes on Wall Street making baby moves Wednesday, just as they did yesterday, but not with cannabis stocks. So perfect person to talk about cannabis stocks is Ross Gerber of Gerber Kawasaki. He's been a big backer of these stocks, well before the election. By the way, happy birthday. Ross.

ROSS GERBER: Thank you, Fred.

FRED KATAYAMA: Good to have you on your big day. Now as I said, you've been sort of, I shouldn't say high on these stocks, but really bullish on these stocks. Now that they're being swept up by this Reddit trading frenzy that we saw whipsaw stocks like GameStop and AMC earlier, how should investors who have already bought stocks who perhaps have listened to you, play this? Should they take profit, for example, on Tilray, which was up 40% earlier today?

ROSS GERBER: Yeah, and I think we have to be careful too to not mix American companies doing business in America and Canadian companies doing business in Canada, because the irony is, everybody is trading these Canadian companies because that's all they can trade. But that's actually not where the big game is. It's really here in America, which all these stocks trade in Canada. And many investors, it's difficult for them to buy shares, because they only list on the pink sheets here.

So we're seeing a rally in kind of the wrong stocks. Although Canopy is a good company, they're really the only stocks that the institutional traders and individuals can buy. And so they're sort of buying the wrong ones. But that being said, across the board, cannabis is a growing, exciting industry, and it's a lot better position than buying stock in AMC and GameStop. So it's good to see people moving over to an area that I think there's a lot more value.

FRED KATAYAMA: So if you've already got some of these cannabis stocks, just hold on and hold on for the ride? Or would you?

ROSS GERBER: Oh, yeah, this is just the beginning. I mean, you have to think long terms. When you think about cannabis, I've been saying this in a lot of interviews, it's like the end of prohibition in 1933, you could invest in alcohol and you look at some of the wealthiest families in America, they're an alcohol family. So here's this opportunity for investors across the board to be participants in the beginning of a massively growing industry that will grow and evolve for a long time to come.

So if anything, we're adding to our positions, because we're seeing confirmation that everything we are seeing is correct. So valuations have gone up. But this is an exciting business.

FRED KATAYAMA: Adding to positions, even though we've seen a huge appreciation of these stocks. Tilray's practically quintupled since December. It's up another 40% today. The stocks, the cannabis stocks ETF, that's up 12% today.

ROSS GERBER: Yeah. And so once again, I would stay away from the Tilrays of the world. I don't think there's value there. I'm very bullish on what we call MSO operators here in the United States. Companies like TerrAscend, Trulieve, True Leaf, Green Thumb, Planet 13. We have positions in all these. And of course, there's risk involved with these investments. But also great potential returns.

FRED KATAYAMA: All right, but stay away from the Canadian listed shares on your site.

ROSS GERBER: Yeah. I mean, Canada is like a small state in the United States. And so Canada sales are doing well. But when you look at the overall market, it's peanuts even compared to California. So the game is here in the United States. Legalization s coming and you want to be in these stocks.

FRED KATAYAMA: And let's look at the overall markets today. It looks like that the market has sort of lost momentum. Yesterday it sort of petered out. Today it looks like another pause. What do you read into the trading action?

ROSS GERBER: Well, we've got the impeachment trial going on and some of these undercurrents. But earnings have been much better than expected. And year over year, so far, earnings have been up. And if you strip out oil companies, I mean, earnings look real, real good for a lot of businesses. So despite the pandemic, what we got was a much more efficient and more profitable America for the businesses that weren't directly affected by the pandemic, which were mostly concentrated in what we call the entertainment business, which is things we like to do.

But the things we need to do, those businesses have been really doing well. So we're bullish, you know. I haven't been bullish for a long time. And I think we're going to have bumps in the road and valuations are high, but when you look at what's happening with fiscal and monetary policy, how do markets lose when everybody's trying to get the economy going? So we're very bullish on the future. We're still very concerned about coronavirus and its long-term effects, but we're positive.

FRED KATAYAMA: All right. Thank you. On that positive note, we'll leave you. Thanks a lot, Ross. And again, happy birthday.

ROSS GERBER: Thanks, thanks.

FRED KATAYAMA: Our thanks to Ross Gerber of Gerber Kawasaki in Santa Monica, California. I'm Fred Katayama in New York. This is Reuters.