Is this bigger than the crypto bubble?
Friday, 21 September 2018
By Sam Volkering
- Wild volatility
- Wilder volatility
- The real story you might have missed
On 20th November 2013, one bitcoin was worth around US$460.
By 30th November, that price had skyrocketed to US$1,150.
And by 18th December, it had returned to US$471.
We saw a rise of 150% in 10 days and then a plummet back to virtually no return just a few weeks later.
Of course, this is an isolated look at the crazy volatility you find in crypto markets.
Though, we can look at other examples to see similar runs.
On February 6 2018, it was worth $6,116.
On February 12 2018, things took off again, pricing one bitcoin at US$11,958.
A 95.5% jump in six days.
On April 6 2018, most of those gains are gone again and one bitcoin is US$6,595.
That’s some pretty wild volatility, right? It’s enough to scare of seasoned, battle-hardened investors. It continues to be treacherous, risky and extremely volatile.
But this kind of volatility isn’t confined to crypto markets. In fact, the wild volatility you only get from global mega-trends exists in ‘traditional’ markets too.
And it happens to stocks that are already worth billions of dollars. Actually, when I say crazy volatility, what I’m about to show you makes bitcoin’s volatility look timid.
First, the markets…
Overnight, the Dow Jones Industrial Average closed up 251.22 points, or 0.95%.
The S&P 500 gained 22.80 points, or 0.78%.
In Europe, the Euro Stoxx 50 index finished up 21.55 points, or 0.63%.
Meanwhile, the FTSE 100 rose 0.86%, and Germany’s DAX gained 79.78 points, or 0.67%.
In Asian markets, Japan’s Nikkei 225 is up 195 points, or 0.82%. China’s CSI 300 is up 3.03%.
In Australia, the S&P/ASX 200 is up 25.10 points, or 0.41%.
This is the real wild west stuff
On October 17, it will be legal to consume marijuana in Canada. Medicinal or recreational cannabis will be as legal and alcohol and tobacco.
It’s a watershed moment for the world. And all eyes will be on the Canadian market. Can the government effectively tax it? Can they put an end to the black market? Can they use it to improve GDP?
There are still a lot of ‘what ifs’. And we won’t really know the answers for at least another year after full legalisation. But what we are already seeing is incredible FOMO (fear of missing out) from the world’s biggest beverage makers.
This again won’t be new information to you if you’ve kept a finger on the pulse this week. But the rumours floating around are that Coca-Cola has been eyeing up a partnership with Aurora Cannabis.
This follows hot on the heels of Constellation Brands (who own Corona beer) investing US$4 billion in Canopy Growth.
Also Heineken’s Lagunitas brand is developing a range of THC-infused ‘beers’. The Hi-Fi Hops are ‘Hoppy Sparkling Waters’ infused with THC (the psychoactive part of cannabis) and one also with CBD.
The talk is that Diageo are also circling cannabis giants looking to also get an edge into this market.
We expect the likes of Pepsi and the Asahi Group to follow suit. But it’s the news of Coca-Cola that really took the market by storm.
On Tuesday, Aurora’s stock closed at CA$11.02. After the Coca-Cola news, it opened at CA$11.38 on Wednesday. It hit a high of CA$12.56 intraday. Then plummeted to CA$10.18 late in the day…to only close at CA$10.87.
That’s some wild prices swings in just hours of trading.
That wasn’t the only one. Tilray, another huge ‘pot stock’ was even crazier. On Tuesday Tilray closed at US$154.98. Wednesday it opened at US$233.58. It hit a high of US$300 during the day — nearly a 100% gain in just a few hours!
Astonishingly late in the day it was back to US$151 and yet still closed at US$214.06 a huge 38% rise from Tuesday’s close.
This is from a company with a CA$11 billion market cap!
Not even bitcoin is that volatile!
The mainstream now would have you believe that these pot stocks are one giant bubble waiting to pop. But that’s not really the case. This is the beginning of a whole new kind of consumer company.
Think about how big a company like Coca-Cola is or PepsiCo. We’re talking US$198 billion and US$163 billion respectively.
Aurora, Canopy, Tilray are all marching towards this kind of level. You shouldn’t’ view cannabis as a ‘drug’. You should be viewing it the same way you view the beer and wine, soft drinks, energy drinks, snacks and sweets markets.
And that’s exactly why the likes of Coca-Cola, Heineken, Constellation Brands, PepsiCo are all starting to scramble for a foothold in this market.
An overnight market that everyone wants a piece of
It’s very quickly becoming a war from the world’s biggest beverage makers to get a foothold in what’s effectively a brand new market opportunity for them.
To give this scramble perspective, it’s like an entire new drinks market opening up overnight. And they all can see the glorious profit potential.
You know how fast and ferocious the rise of energy drinks was. Red Bull became a virtually instant global giant they command 43% of the energy drink market. Monster Energy, Rockstar, NOS and Amp combine for another 55%.
Then there was the rise of ‘wellness’ drinks like coconut and vitamin water.
Well now with CBD infused drinks you’re looking at the next boom in ‘weed water’. This is the initial angle the drinks makers will be taking. But the reality is THC-infused beverages may be the biggest disruption to the drinks market ever.
Think of THC-infused weed water like a beer, except without the raging hangover but with all the inhibition-releasing fun. It won’t be a case of going to the pub to get a pint on tap. Instead you’ll be going for a ‘Pepsi Pot’ or ‘Coke 420’.
In our view, it’s also no coincidence that Coca-Cola is looking in this area and that just a couple of months ago they launched their first-ever alcoholic beverage.
We think Coca-Cola is looking to their next big product launch and it might come in the way of cannabis drinks. Before long, we think every food and drink company will be looking down the barrel at this market.
Coca-Cola, PepsiCo, Nestle, Mondelez, Diageo, Kraft Foods, Unilever, Danone — cannabis isn’t all just about smokin’ the wacky tabaccy.
It’s a far bigger, far greater cultural shift that’s taking place. And the likes of Aurora, Canopy, and Tilray are just some leading the charge.
That’s the true revolution in play and why these pot stocks might look like a big bubble, but, in truth, I believe they’re the next great consumer companies…