Why the biggest boom for pot stocks is yet to come

Thursday, 24 August 2017
Melbourne, Australia
By Bernd Struben

  • Position yourself now
  • 1,000% gains in one year
  • In the mailbag

I’ve written to you before about governments’ propensity to screw things up.

About bureaucrats’ insistence on meddling with free market forces…and your free choices.

Running roughshod over what people want is a recipe for failure. And that’s true whether you’re talking about 20% of the people, or the majority.

Nowhere is this more evident than in the so-called war on drugs. I won’t go into any great detail today. You know the history. It’s still playing out…

Hundreds of billions of dollars poured into law enforcement and courts. An explosion in prison construction. Millions of people locked up around the world, many for simple possession. And, of course, a huge boon to black market operators.

How big a boon?

According to a 2017 report by Global Financial Integrity, as much as US$652 billion per year. In comparison, Alphabet Inc. [NASDAQ:GOOGL] has a market cap of US$649.49 billion.

With that kind of money at play, violent turf wars erupted from the jungles of South America, to the cities of North America, to…well…everywhere. And world governments are nowhere nearer to ending their disastrous prohibition efforts. Just take a look at what Rodrigo Duterte is up to in the Philippines.

Now, to be clear, I am not advocating breaking the law. Or encouraging the use of illicit — or licit — drugs. I am simply pointing out that waging a war on people’s innate desires is the wrong approach.

Despite a growing acceptance that prohibition has failed, the drug war has enough vested interests behind it to rage on for many years. But one formerly notorious drug is starting to distance itself from its illegal label.

With stunning medicinal applications and wide recreational appeal, cannabis is slowly marching towards full legalisation. And it’s taking billions of dollars out of criminal hands and putting it right into investors’ pockets…and government coffers.

More after the markets…

Markets

Overnight, the Dow Jones Industrial Average fell 87.80 points, or 0.40%.

The S&P 500 lost 8.47 points, or 0.35%.

In Europe, the Euro Stoxx 50 index closed down 16.96 points, or 0.49%. Meanwhile, the FTSE 100 gained 0.01%, and Germany’s DAX index dropped 0.45%.

In Asian markets, Japan’s Nikkei 225 index is down 77.21 points, or 0.40%. China’s CSI 300 is down 0.28%.

In Australia, the S&P/ASX 200 is up 3.24 points, or 0.06%.

On the commodities markets, West Texas Intermediate crude oil is US$48.33 per barrel. Brent crude is US$52.48 per barrel.

Gold is trading for US$1,289.07 (AU$1,629.88) per troy ounce. Silver is US$17.15 (AU$21.68) per troy ounce.

One bitcoin is worth US$4,218.64.

The Aussie dollar is worth 79.09 US cents.

Position yourself now

You could argue that the Netherlands, or perhaps Portugal, led the way towards legalised marijuana. And you’d have a point.

But it wasn’t until states in the US began to legalise marijuana for its medicinal and recreational use that the world sat up and took notice. The war on the ‘devil weed’ was spearheaded by the US, after all. But now the most powerful nation on Earth — yep, sorry, China — is rapidly changing tack on cannabis prohibition.

And investors on the right side of the trade are making a fortune.

You likely know the same story is playing out — slowly — here in Oz as well. Our government recently gave the green light to medicinal marijuana. And that opened the door to some ASX-listed marijuana stocks.

Sam Volkering was atop that move from day one. He recommended four Aussie listed pot stocks to subscribers of Australian Small-Cap Investigator in February and March this year. If you’d invested in all four of his pot stocks, you’d currently be sitting on a 24.5% gain.

Now, that’s not bad in six months’ time…

But Sam tells us the real opportunity is in North American pot stocks. He’s so convinced, that publisher Kris Sayce flew to London to interview Sam on film for the Marijuana Investment Summit.

1,000% gains in one year

Some of what Sam and Kris reveal is absolutely stunning. Including the fact that at least 20 North American pot stocks soared more than 1,000% last year. That’s right. More than 1,000%.

With those kinds of returns already in the bag, you may be thinking you’ve missed the boat on this one. But, according to Sam, nothing is further from the truth.

First, its medicinal potential is only just beginning to be properly researched. Already cannabis has proven effective at treating epilepsy, multiple sclerosis, many side-effects from chemotherapy, glaucoma…the list goes on.

It’s why Sam calls cannabis ‘this century’s penicillin’. And with research funds beginning to ramp up, marijuana’s medicinal applications are likely to explode.

The second reason Sam expects last year’s 1,000% gains to be repeated can be found in the map below.



chart image

Source: mjbizdaily.com
Click to enlarge

The map shows the US states that have already legalised recreational use of marijuana (dark green) and medicinal use (light green). The opportunity lies in the white states.

New Jersey, Vermont, Texas, and Kentucky — to name a few — are all considering legalisation. And as Sam says, ‘Every new state that legalises its use offers a windfall to existing pot stocks.’

Furthermore, Sam expects cannabis will be legalised on a federal level in the US by 2020.

If that’s not reason enough to be optimistic about the best pot stock plays in North America, here’s one more — Canada.

The Canadian parliament will vote on legalising the use of medicinal and recreational marijuana on 1 July next year. Sam’s research indicates the measure will sail through.

As Sam explains,

In 2016, total marijuana sales weighed in at $6.7 billion. This year, that number is forecast to jump 30%, to $8.7 billion.

But that’s chump change compared to where this market is headed.

By 2020, Bank of America Merrill Lynch reported marijuana sales could hit an estimated $35 billion.

And many experts believe the global marijuana market could eventually reach $270 billion.

With figures like this in mind, Sam has scoured the North American market for what he’s convinced are the three best stocks to benefit from this booming growth market. You can get all the details here.

In Sam’s own words, ‘These are not stocks that could only inch up 5% or 10% a year. We’re talking about the real potential to make life-altering gains. The potential to rack up a quick succession of gains like 800%, 2,000% and even an incredible 8,500%.’

I know those kinds of gains sound incredible. And they are. But all signs point to legalisation in the US and Canada heading full steam ahead.

As reported by The Hill:

The latest Harvard–Harris Poll survey found that 49 percent of Americans polled believe marijuana should be legalized for both medical and personal use. Thirty-seven percent say it should be legalized solely for medicinal purposes, meaning that 86 percent of respondents support legalizing the plant in some form.

Only 14 percent say marijuana should be illegal.’

With those kinds of statistics in mind, have another look at the map above. Then ask yourself: How soon before all the states are green?

Investors getting in on the right pot stocks now could indeed make life-altering gains. You can get all the details from Sam and Kris at the Marijuana Investment Summit here.

In the mailbag

I received a few emails from readers about Tuesday’s Port Phillip Insider.

One reader wrote in about my take on governments announcing bans on petrol and diesel vehicles:

Bernd Struben’s views about the Government’s trampling of the invisible hand and in relation to the introduction of electric cars is too good a fit for the philosophical assertion that for every complex problem in life there is usually the easy, obvious and wrong solution.

As a former bureaucrat whose been on both sides of the fence, I’d make the point that the bureaucrats Bernd writes about would not get their way if the members of Parliament did not support them — and this is because those members of Parliament base their actions on their perception of the will of the people (or a small faction that controls the party who follow a small group of the people).

Now perhaps everything looks like it’s true from Bernd’s perspective because there are too many lawyers in Parliament who do not understand business and who are too busy winning votes at whatever the cost. But it might also be that there are other agenda’s which are far greater than the one that Bernd focused on, and which he omitted to take account of!

In this case any seemingly “premature” move to electric cars, is no doubt just a junior part of the push to reduce green house gases — and given that the trend for electric cars suggests that “business as usual” would likely lead to a similar phase-out timing for conventional engines anyway — Bernd’s point reduces to little more than an argument about whether the market forces are more or less efficient than government forces (interventions) in getting to a common end point.

While everyone agrees that government’s often get it wrong, I am not aware of any good argument that market forces always get it right — where “right” is measured by the well being of society and not just money in someones pocket. There are many examples of market failure in human terms, and probably in economic terms. But in any case, so what, as this sort of discourse does not change action at government level and investors have to cope with what is, not what they wish it was.

As a reader what I want to hear are the arguments about new directions and opportunities. For the electric car it could be if the move to this technology is likely to continue, and in what time frame it might mature or dominate. Out of this there will be business opportunities and stresses — what are they and what are the access points to those opportunities or solutions to minimize the stresses. And lastly, where is Australia going to fit into all of this.’

Subscriber, Trevor

Hats off to Trevor for surviving his life as a former bureaucrat and emerging with his sanity intact.

Now, of course, free market forces don’t always get it right. At least not the first time. But when free market players fail, they try again. That’s because they know there won’t be any profit in it for them until they do get it right.

When government steps in, it kills this motivation.

By banning fossil fuel cars in 2040, governments stamp out the incentive for companies to create better petrol cars in the interim. But far worse, they greatly reduce the competition faced by electric cars.

At the moment, electric carmakers need to compete against petrol, diesel and gas cars — which make up more than 96% of the market. If these bans go through, electric cars will only have to compete with…other electric cars.

In answer to the other comments, yes, the move to electric cars will almost certainly continue. With or without government intervention.

The obvious plays here are companies involved in lithium, cobalt, nickel, and copper. These metals are all used extensively in battery technology. But a lot of this is in the news already. And if it’s in the news…it’s in the price.

Jason Stevenson was onto the cobalt story early in the game. He recommended Barra Resources Ltd [ASX:BAR] to subscribers of Resource Speculator when the stock was seen as a dog. He then recommended selling it for a 127.7% gain on 27 February this year.

Jason now views most lithium and cobalt stocks as overvalued. But he’s still bullish on nickel. You can check out his latest nickel tips here.

Finally, I did recommend a contrarian opportunity in the face of all this electric-vehicle noise. While the mainstream media is focused on the extinction of petrol cars, oil stocks have taken a drubbing.

But black gold is showing some signs of resurgence.

As The Australian Financial Review reported this morning, ‘[Oil] Futures in New York gained 1.2 per cent after the Energy Information Administration said America’s crude inventories shrank for an eighth straight week, with gasoline supplies also falling.

With 96% of new vehicles still running on petrol and diesel, oil is far from out of the game yet.

Colleague Greg Canavan expects the oil supply to get a lot tighter in the months ahead. The reason? Hidden issues within the US shale industry and a pending move by the Saudis to drastically cut supply in the short term.

Greg’s just tipped three beaten-down Aussie oil and gas stocks that should soar if oil supplies shrink as he expects. You can find out more here.

That’s all for today.

Please send your comments, feedback and general missives to letters@portphillipinsider.com.au.

Cheers,
Bernd