Why Green Thumb Stock Popped, Then Dropped Today

Key Points

• President Trump posted a video yesterday touting the benefits of medical marijuana.

• The video also urged Medicare coverage of the drug.

• Green Thumb stock spiked on the news yesterday and today -- but remains cheap.

• 10 stocks we like better than Green Thumb Industries ›

Green Thumb Industries (OTC: GTBIF) stock, an over-the-counter traded, Chicago-based cannabis company, jumped more than 5% in early trading Tuesday before giving back most of its profits, and retreating to a 1% gain as of 11:20 a.m. ET.

I don't think investors need to worry too much about the retreat, however.

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Image source: Getty Images.

Time to take some profits

As you've probably heard by now, President Trump posted yesterday on Truth Social a video (an infomercial, really) from The Commonwealth Project, which encouraged the president to grant Medicare coverage of medical marijuana use for senior citizens, and generally speaking, to encourage using cannabis to treat ailments of the "endocannabinoid system" as an alternative to "dangerous and addictive pharmaceuticals" sold by traditional pharmaceutical companies.

That news sent Green Thumb stock rocketing more than 15% yesterday, as investors bet the president would soon announce official backing for medical marijuana -- or even for legalizing marijuana in general. The momentum carried over into this morning, spurred by a well-timed press release from Green Thumb announcing the open of its latest RISE marijuana dispensary in Lebanon, Pa.

For those keeping score at home, that's about 20% of gains for Green Thumb stock in barely 24 hours. If momentum traders decided that today might be a good day to take some profits, I could hardly blame them for it.

Is Green Thumb Industries stock a sell?

That doesn't mean you should sell, though. With $126 million in trailing free cash flow, Green Thumb is one of the most successful marijuana stocks out there, and it only costs about 15.5 times free cash flow in valuation.

While it's never easy to predict what's next on President Trump's agenda, if legalization is on the table, this could be a great price at which to get into Green Thumb stock.

Should you invest $1,000 in Green Thumb Industries right now?

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Green Thumb Industries. The Motley Fool has a disclosure policy.