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How to Trade Cannabis Stocks After $4 Billion Aphria-Tilray Merger

Aphria and Tilray are merging in a $4 billion deal. Let's look at how to trade other key names in the group after the announcement.

Cannabis stocks have been heating back up lately and they were thrust firmly into the spotlight on Wednesday.

That came as Aphria  (APHA) - Get Aphria Inc Report and Tilray  (TLRY) - Get Tilray Brands, Inc. Report agreed to an all-stock merger valued at roughly $4 billion.

Aphria shares were up about 4% in response, while Tilray stock has erupted about 24% on the day.

It’s got investors taking a closer look at the cannabis space, and more specifically which stocks might be next in an M&A scenario.

Once a red-hot investment area, the cannabis space lost most of its luster once the hype died down.

Various catalysts remain in the pipeline - like legalization in states like New York and potentially at the federal level - although bulls have seemed reluctant to really bid the group higher in a sustainable fashion.

Let’s look at the group more closely.

Trading Canopy Growth

Daily chart of Canopy Growth stock.

Daily chart of Canopy Growth stock.

Largely considered to be the leader in the cannabis space, Canopy Growth  (CGC) - Get Canopy Growth Corporation Report has been looking better lately.

However, it’s not as small as many of its peers and with Constellation Brands  (STZ) - Get Constellation Brands, Inc. Class A Report owning such a significant portion of the company, that is likely the only suitor that could acquire Canopy at this point — if that’s even on the table.

We can’t control that, but we can control how we trade it.

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On the weekly chart, shares are struggling near $28.50, but the stock is holding the 100-week moving average and the prior 2020 high from January as support.

A weekly close below the 200-week moving average near $23.80 really takes the air out of the bullish setup. On the upside, clearing the November high at $29.52 opens the door to $30-plus and could put the 161.8% in play near $36.50.

Trading Aurora Cannabis Stock

Daily chart of Aurora Cannabis stock.

Daily chart of Aurora Cannabis stock.

With its much smaller market cap, Aurora Cannabis  (ACB) - Get Aurora Cannabis Inc. Report could find itself on the right site of potential M&A chatter. However, until lately the stock has traded quite poorly.

For now though, shares are holding the 21-day and 200-day moving averages as support, as well as a key VWAP mark (volume weighted average price). Below last week’s low at $9.25 and Aurora will break below all of these support marks, ruining the long setup unless these marks are quickly reclaimed.

A move over downtrend resistance and Wednesday’s high at $10.49 puts the December high in play at $12.19, followed by the November high at $14.48.

Trading Alternative Harvest (MJ) ETF

Daily chart of the MJ ETF.

Daily chart of the MJ ETF. 

Those that prefer a basket approach might consider the Alternative Harvest ETF  (MJ) - Get ETFMG Alternative Harvest ETF Report.

After a strong pop in early November — due to the election — shares continued to power higher into December. That led to a great little bull-flag pullback to the 21-day moving average.

Seeing some continuation higher on Wednesday, bulls are looking for a rotation higher.

If the stock can clear this month’s high at $16.26 and fill that last remaining gap from February at $16.37, it could put the 2020 high in play all the way up at $19.32.

A rotation below this weekly low at $14.59 could trigger a move down to the 50-day and 200-day moving averages.