Investing in public enemy number one

Thursday, 30 August 2018
Melbourne, Australia
By Bernd Struben

  • ‘They cannot ignore this space’
  • Nanny state laws under review in West Australia

June 1971. A date that should also live in infamy.

This was when US President Richard Nixon officially declared the ‘War on Drugs’. Nixon told the nation that drugs, including marijuana, were now ‘public enemy number one’.

As we now know, over the following years people saw the rationality behind Nixon’s new war. Drugs all but disappeared. Crime plummeted. Law enforcement agencies found they were overstaffed. Many agencies even volunteered to reduce their budgets, as former prisons were levelled and turned into parks.

Wait. That’s not what happened?

Oh, right.

47 years later, drug use around the globe remains as prevalent, if not more so, than the day Nixon launched his ill-conceived war. Organised crime thrived in every nation that joined in the good fight. Jails overflowed — and still do — with drug offenders. And violence flared on the streets as competing gangs fought for their share of the billions of dollars in illicit trade.

As for the Drug Enforcement Administration (DEA) Nixon established in 1973? Well, it didn’t exactly get any smaller with time.

According to history.com, the DEA’s budget has gone from less than US$75 million in 1973 to US$2.03 billion today. Now that’s a growth industry for you.

The DEA’s outlook still looks promising (rest easy, aspiring agents). But one drug, at least, is swinging from public enemy number one to an important medicine. Not to mention gaining legitimacy for recreational use.

I’m talking, of course, about marijuana.

As you know, Australia recently joined a host of other forward-thinking nations in legalising medicinal marijuana. The program is in its early days. But according to The Sydney Morning Herald it could eventually top $200 million.

Of course, this pales in comparison with the revenue earned by some US states that have not only legalised medicinal cannabis, but recreational pot as well.

Colorado, for example, reported $1.5 billion in marijuana sales in 2017. California did even better, with $2 billion in sales. Remember, this is all money that was recently going straight into the coffers of organised crime.

But in October this year, Canada is set to make a move that should dwarf those figures. 17 October, to be precise.

That’s the date that Canada, a nation of 37 million, will fully legalise recreational marijuana use for adults. And it’s set to create a massive new market. A market which Deloitte forecasts could hit $22.6 billion.

This is why our own ‘pot stock’ investing analyst, Sam Volkering, has been saying to circle 17 October on your calendar.

In his special report on the subject, ‘Cannabis Jackpot’ Sam writes:

It’s clear as day. This new legal cannabis market amounts to real-life gold mine. That’s why investors have gone bonkers for cannabis stocks.’

Sam adds:

The floodgates have opened. Cannabis is being welcomed with open arms. And you’re staring at an opportunity that could amount to the biggest money-maker you’ll see this decade.’

In ‘Cannabis Jackpot’, Sam reveals a little-known Aussie company that he believes could ride Canada’s legal pot wave to new, erm, highs. One he expects could potentially see gains of 495%…or more.

That’s a big claim, I know. But Sam believes it’s far from hyperbole. You can find out all the details for yourself, right here.

More, after the markets…

Markets

Overnight the Dow Jones Industrial Average closed up 60.55 points, or 0.23%.

The S&P 500 gained 16.52 points, or 0.57%.

In Europe, the Euro Stoxx 50 index finished up 8.56 points, or 0.25%. Meanwhile, the FTSE 100 lost 0.71%, and Germany’s DAX closed up 34.26 points, or 0.27%.

In Asian markets, Japan’s Nikkei 225 is up 51.45 points, or 0.23%. China’s CSI 300 is down 0.78%.

In Australia, the S&P/ASX 200 is up 1.87 points, or 0.03%.

On the commodities markets, West Texas Intermediate crude oil is US$69.72 per barrel. Brent crude is US$77.29 per barrel.

That puts WTI up 1.7% since I wrote to you yesterday. But all signs still indicate an abundance of supply should see prices come down 10–15% over the coming months.

Take Iraq, for example.

According to the International Energy Agency, Iraq has roughly 240,000 barrels a day of unused capacity. This is despite the fact Iraq is likely to pump a record amount of crude in August. And as Bloomberg notes, the Iraqis are ready to pump more.

Iraq sees a need to increase crude exports and says it’s ready to ship more as soon as OPEC agrees how members will share a collective supply boost, according to the acting director-general of the state-run Oil Marketing Co.

Exports will be close to 3.595 million barrels a day this month, Alaa Al-Yasiri said Wednesday in an interview in Baghdad. That would be a record, he said, up from 3.54 million barrels a day in July.’

Turning to gold, the yellow metal is trading for US$1,205.58 (AU$1,638.19) per troy ounce. Silver is US$14.73 (AU$20.18) per troy ounce.

One bitcoin is worth US$7,038.37.

The Aussie dollar is worth 73.00 US cents.

‘They cannot ignore this space’

Exchange traded funds (ETFs) are one way to gain exposure to broad market trends.

I’ve mentioned a few in Port Phillip Insider over the past months. You’ve got ETFs that gain when the oil price falls, for example, which is known as an inverse ETF. And you’ve got ETFs that are intended to track various markets, like South Korea’s or Mexico’s.

Now there are also ETFs — like the ETFMG Alternative Harvest ETF — that track the Canadian cannabis industry. And as Bloomberg reports, investors are beginning to sit up and take notice:

U.S. investors are piling into an exchange-traded fund that tracks the Canadian pot industry as the country moves toward legalization and liquor producers show growing interest in selling pot.

The U.S.-listed $436 million ETFMG Alternative Harvest ETF, known by its ticker MJ, has taken in about $22 million in August, putting it on track for the largest monthly inflow since February. That asset growth has been fueled by a 35 percent surge in the fund’s price since Aug. 14.

Pot stocks have been soaring amid Canada’s pending legalization of recreational cannabis on Oct. 17 and growing speculation that other industries will buy in. For example, Tilray Inc., a Canadian marijuana pharmaceutical maker, has more than tripled since it started trading on July 18.’

You can see the recent investment spike in the chart below:



chart image

Source: Bloomberg
Click to enlarge


The downside with ETFs, at least the unleveraged ones, is that they don’t tend to rocket up in price in a matter of weeks. That’s because they hold a basket of stocks.

Some of the stocks they hold may see their share prices triple in a month, like Canadian marijuana pharmaceutical maker Tilray Inc. Others may lose value and drag on the ETF’s potential gains.

Nonetheless, a 35% leap in ETFMG Alternative Harvest’s price since 14 August is nothing to sneeze at.

Investors across the world are beginning to cotton on to the incredible potential of this brand new market. A market that’s only recently begun to draw interest and funding from some of the big drinks corporations.

From Bloomberg (last Friday):

Canada’s legalization of recreational pot, which begins in October, has attracted broad interest from the drinks industry. This month, Constellation Brands Inc. announced it’ll spend $3.8 billion to increase its stake in Canopy Growth Corp., the biggest deal in the burgeoning marijuana industry yet. Molson Coors Brewing Co. is starting a joint venture with Hydropothecary Corp. to develop cannabis drinks in Canada…

“They cannot ignore this space,” said Steve Ottaway, an investment banker who specializes in cannabis for Toronto-based GMP Securities. “How they actually get there and the construct is to be determined, but they’re coming.”

Heineken, we’re told, is also getting into the action. The Dutch beer company’s California-based craft brewery, Lagunitas, is planning to come out with an India pale ale-inspired sparkling water infused with THC.

THC, if you’re not familiar, is the active ingredient in cannabis that gives users their ‘high’.

If only Nixon were around to enjoy a few bottles.

With our deadline fast approaching and our word count topping out, we’ll leave it there for today.

Don’t forget to check out Sam Volkering’s report ‘Cannabis Jackpot’ highlighting his favourite pot stock play in the leadup to Canada’s historic decision.

The countdown to 17 October has begun in earnest.

Questions or comments on pot stocks, Nixon’s drug war, or anything else that may be percolating through your mind? Send your letters to letters@portphillipinsider.com.au. If we publish your email, we’ll only use your first name.

Finally, here’s the latest pushback against the nanny state from The Australian Tribune:

‘Nanny State Laws Under Review in West Australia’

West Australia’s government has spent many decades adding laws to the books that do nothing but attempt to protect people from themselves.

Clearly the pollies never took to heart the brilliant insight of British philosopher John Stuart Mill. In the 19th century Mill wrote, “The only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others.”

It’s hard to see how…’

If you’re fed up with sanitised, politically correct dogma cut and pasted from one mainstream source to another, then The Australian Tribune is for you.

And it’s absolutely free.

Sign up here to get The Australian Tribune delivered free to your inbox five days per week.

You can visit our website at https://www.theaustraliantribune.com.au/ to read the complete article above now.

Cheers,
Bernd