Most cannabis stocks will see their all-time highs in December and January, which is a good time to divest some holdings. (Getty Images)

Cannabis stocks are set to rise within a few weeks as their trading season is cyclical and typically kicks off in the fall.

Retail investors should examine their current holdings since the sector's seasonality means a surge in volume and liquidity from October through April.

The trading season started earlier this year when Constellation Brands (NYSE: STZ) purchased a 38 percent stake in Canadian cannabis company Canopy Growth (CGC) for $4 billion in August, says Michael Berger, founder of Technical420, a Miami-based company that conducts research on cannabis stocks.

"Summer tends to be seasonably slow for the cannabis industry, but the buying volume is picking up and momentum is also higher," he says.

During the cannabis stock trading season from August to December 2017, the stocks rose by 20 percent and dipped by 5 percent. The same trading cycle is likely to occur this year.

"There would be a rally, then a pullback every few days," Berger says. "This long trend steadily moved the market over time and this is what we are starting to see again. If you were able to play the dips last year, expect the same this year."

Two catalysts affected trading this summer – Constellation's investment in Canopy and the Canadian Parliament approval of Bill C-45 in June, which makes the adult use of marijuana legal starting on Oct. 17. The passage of the federal law will encourage more investments in this budding sector.

"The paradigm has shifted for Canadian marijuana companies since it will be a completely legal country," says Jason Spatafora, co-founder of Marijuanastocks.com and a Miami-based trader.

The lower volume of cannabis stocks traded during the summer means that investors face the 52-week lows during those months while the highs tend to occur in January.

"All those bought deals that took place at the highs of the market and following months have a four- or six-month holding period," he says. "When they mature in spring or summer, it puts downward pressure on companies in an already weakened market. Investors who don't track maturity dates on these bought deals take a big risk, simultaneously creating opportunities for investors like myself who are waiting for safer buying levels."

Most cannabis stocks will see their all-time highs in December and January, which is a good time to divest some holdings.

"I typically tend to take a profit," Spatafora says. "I will hold positions long, but if I see a good opportunity, then I have no problem peeling back off of bigger positions of something that can move."

Some cannabis producers are overvalued because of the exuberance in the market. Canadian cannabis producer Tilray (TLRY) has a market cap at $7.8 billion and traded at $83 a share on Wednesday because of a small float which limits the supply of stock in the market and excessive demand from investors, he says.

The company’s stock has continued to rise since its IPO in July of $17 a share. Tilray reported a net loss of $12.8 million on revenue of $9.7 million in the second quarter, an increase of 95.2 percent. The company also recently announced it signed agreements to supply adult use cannabis in seven Canadian provinces and territories.

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While Tilray is the third-largest producer of cannabis in Canada, the company's stock is trading at a higher multiple than its peers, which affects the company negatively long term, says Spatafora, who purchased both $46 and $60 Sept. 21 put options.

"In a market that has high demand and such a small supply of stock, it is going to run," he says. "It is a great company, but I don't like them at this valuation."

Tilray could have issues raising capital in the future because a bank may not underwrite financing if the stock is trading at $40 to $59 with a small float, Spatafora says.

"It is so expensive compared to the revenue of Canopy Growth or Aurora Cannabis," he says. "In a market like this, Tilray is acting like bitcoin. Investors should be cautious because as dramatically as it goes up, it can go down just as quickly."

The momentum for the company's shares could come to a halt on Oct. 19 just two days after Canada's recreational sales start on Oct. 17. When the restricted stock is available for trading and more shares are available on the market, there is going to be profit taking by many investors.

"I already anticipate profit taking on Oct. 17 just as we saw on June 6 after C-45 passed. This exaggerated price move has a lot to do with share count versus fundamentals and Tilray should trade on multiples similar to some of its bigger peers."

Another looming issue is that two cannabis exchange-traded funds will rebalance as early as Aug. 31 – they will trim their current holdings and purchase shares of companies that are undervalued due their internal rules, resulting in more shares on the market.

Horizons Medical Marijuana Life Sciences ETF does not own more than 10 percent of a company's stock while MG Alternative Harvest ETF (MJ) does not have a position larger than 7 percent, Spatafora says.

"They are going to trim some companies – right now, Horizon owns 18 percent of Aurora and that could be could be $100 million of selling pressure," he says.

Several other marijuana companies are undervalued despite having strong management teams and balance sheets and supply agreements with several Canadian provinces, Berger says.

Emerald Health Therapeutics is an attractive opportunity and has seen its shares rise during the past two weeks. The company's current market cap of $419 million significantly undervalues the company despite its supply agreements with Canadian provinces, positive cash flow and 1-million-square-foot production facility.

Investors should take a look at Emblem Corp., a medical cannabis producer, which recently purchased Natura Naturals, which operates a 662,000-square-foot licensed greenhouse, for CAD $25 million ($19 million).

"They have supply agreements with both the recreational and medical markets, invested in several brands and are focused on international business including a letter of intent to form a joint venture with German pharmaceutical wholesaler Acnos Pharma," Berger says.

Sunniva, based in Calgary, has a relationship with Canopy Growth, which agreed to purchase 45,000 kilograms each year for the next two years, is an undervalued play and is in the midst of undergoing a major expansion.

"They are flying under the radar with a $150 million market cap, but they have a solid management team who is creating value for shareholders," he says.

Aphria, a medical cannabis company headquartered in Ontario, remains a leading global producer who competes with Aurora and Canopy. Their current chief commercial officer, Jakob Ripshtein was previously the CFO for Diageo North America and the company has a decent cash reserve, conducted two accretive acquisitions and is "executing on all cylinders," Berger says.

Diageo (DEO) has been rumored recently to conduct its own cannabis beverage deal, following in Constellation Brands' footsteps to enter the marijuana-infused beverage sector.

Some of the other heavyweights of the Canadian marijuana industry include Canopy Growth and Aurora Cannabis, who are still good assets to add to a portfolio, he says.