When 11 million square feet of cannabis isn’t enough…

Tuesday, 4 December 2018
Melbourne, Australia
By Bernd Struben

  • A ‘win-win position’ for gold
  • ‘Tiny Island Ousts Brussels to Dictate Australian Climate Policy’

We open today with a look at the marijuana markets. And what happens when the cannabis well runs dry.

But before we get to that, an important reminder.

Yesterday I wrote to you about the Third Wave Portfolio.

This portfolio of 10 global stocks was put together by a handpicked team of Port Phillip Publishing’s top investment analysts.

After several months of research and investigation, and several weeks of debate, the team came to a consensus. They unanimously agreed that these 10 stocks have the highest potential of any they looked at to skyrocket over the coming decade.

We’ll send you details on their Special Portfolio tomorrow. But be sure to check your inbox today for a letter with more on this effort, from publisher Kris Sayce.

Now back to marijuana…

Back in the 1980s, when your editor was in high school and university in the US, legalised cannabis was, well, a pipe dream. Not that there wasn’t a multibillion-dollar market for marijuana. But all the revenue went to black market dealers, many of who were not the most savoury characters.

The dealers, of course, were all criminals then. As was anyone who smoked ‘the devil weed’.

The vast majority of cannabis was still grown outdoors in the 1980s. Which meant the supply was plentiful in autumn and through the winter. But it tended to dry up over the summer, in the leadup to the next outdoor harvests.

This posed a problem for the die-hard pot smokers. Folks not generally known for their long-term planning skills…or capacity to ration.

You’d think that today, in countries like Canada where recreational marijuana has been legal since 17 October, this would no longer be a problem. Indeed, in the lead-up to the big legalisation day, the Canadian government was adamant they had enough supply locked in to satisfy the masses.

As Bloomberg reported on 10 October:

Canada is “well positioned” to supply cannabis as the country transitions to a legal market on Oct. 17, with 66 licensed producers given the go-ahead to sell marijuana, said Mathieu Filion, a spokesman for Health Minister Ginette Petitpas Taylor.

More than 160 expansions or modifications of existing facilities have been approved since June 2017 and the government estimates the nation’s licensed growers have in excess of 11 million square feet of space as of the end of June, including space for cultivation and office space and storage.’

11 million square feet (just over one million square metres) of space devoted to growing and selling cannabis! Surely enough to meet demand, right?

Apparently not…

This headline comes from the Global News on 14 November, ‘Canada-wide cannabis shortages could last years, producers warn’. The article continues:

The supply shortages that have plagued many provinces in the first month of legal cannabis will likely persist for years, industry insiders say.

Provinces including British Columbia, Alberta, Manitoba, Saskatchewan, Quebec, Nova Scotia and New Brunswick have all reported varying degrees of shortages.

New Brunswick was forced to temporarily close more than half its stores, while the Quebec Cannabis Corporation has reduced its store opening hours to four days a week. Labrador’s only legal cannabis store said it was forced to temporarily close after being without any product for nearly two weeks.’

Supply shortages like this are bad news for Canada’s pot smokers, who may find themselves having to go cold turkey. It’s also bad news for the Canadian government. They stand to lose out on millions of dollars in tax revenue, temporarily flowing back into the black market.

But a potential multi-year shortage is fantastic news for companies set up to supply the Canadian market with legal marijuana. Who doesn’t like to know that their next harvest is as good as sold before the plants even take root?

It could also prove to be highly profitable news for Sam Volkering’s favourite current pot stock.

It’s an Aussie-listed small-cap stock. One he calls a ‘stealth play’ on Canada’s 2019 pot profit blowout.

Of course, there are risks involved with any investment. And that’s especially true with small-cap stocks. But if Sam’s right, this is one stock you’ll likely want to look into.

You can find out more here.

Now to the markets…

Markets

Overnight, the Dow Jones Industrial Average was up 287.97 points, or 1.13%.

The S&P 500 gained 30.20 points, or 1.19%.

In Europe the Euro Stoxx 50 index finished up 41.86 points, or 1.32%. Meanwhile, the FTSE 100 rose 1.18%, and Germany’s DAX closed up 208.22 points, or 1.85%.

In Asian markets, Japan’s Nikkei 225 is down 233.07 points, or 0.99%. China’s CSI 300 is down 0.04%.

In Australia, the S&P/ASX 200 is down 46.76 points, or 0.81%.

On the commodities markets, West Texas Intermediate crude oil is US$53.27 per barrel. Brent crude is US$61.69 per barrel.

Turning to gold, the yellow metal is trading for US$1,231.52 (AU$1,673.49) per troy ounce. Silver is US$14.40 (AU$19.57) per troy ounce.

(More on the rising gold price below…)

One bitcoin is worth US$3.862.97.

The Aussie dollar is worth 73.59 US cents.

A ‘win-win position’ for gold

The gold price rose about US$10 (AU$13.60) per ounce overnight. Not a huge move, but certainly heading in the direction many of the world’s biggest money managers are predicting.

Yesterday we had a look at some of the big names predicting gold will break higher in 2019.

Those include Trey Reik, a senior money manager at the US unit of Sprott Inc, which oversees $7.6 billion. And Goldman Sachs, who recently endorsed bullion as one of their top 10 trade ideas for commodities.

Yesterday we also spent some time looking into the truce in the US-China trade war reached in Buenos Aires on Saturday…and its likely effect on stocks.

So it was with interest that I read a piece tying both of those topics together, written by none other than Jim Rickards. Long time readers may remember that the American lawyer, economist, and investment banker worked with Port Phillip Publishing for a number of years.

These days he still writes for some of our international affiliates, including Agora Financial Australia.

Anyhow, the piece I’m referring to was published this morning in the US Daily Reckoning.

Here’s what Jim has to say on the trade war…and gold:

The single most important factor in the analysis is that there are certain sectors that are likely to benefit, regardless of which way the trade wars turn out. The most important sector is gold and gold mining.

China has tentatively agreed to buy more output from the U.S. mining sector as part of its temporary trade-war peace treaty with the U.S. The largest and best-managed gold producers in the U.S. also produce other metals that are in high demand by China including silver, copper, iron ore, lithium and cobalt.

A lift in purchases by the Chinese from miners will lift the gold price alongside the prices of those other strategic and industrial metals.

Conversely, if the U.S.-China trade wars resume in full force, gold will continue its recent rise as a safe-haven investment. In recent years, both U.S. Treasuries and gold have provided a safe haven for investors.

But Treasuries have taken the lion’s share of these capital flows. If China and the U.S. go back to the trade wars, Chinese purchases of U.S. Treasuries will decline. This will make Treasuries an unattractive destination for investors worldwide. This will also leave gold as the only unaffected safe haven.

All this puts gold in a win-win position. Gold miners will rally if China keeps its promise to buy more mining output. Gold bullion will rally if the trade wars resume.

Either way, gold and gold miners are winners.’

Our in-house resource analyst Jason Stevenson has an equally bullish outlook for gold and gold miners in the year ahead.

He explains why — and profiles his three favourite ‘gold shock stocks’ — right here.

That’s a wrap for today…

Comments, ideas, idle musings?

Send them to letters@portphillipinsider.com.au. If we publish your email, we’ll only use your first name for privacy reasons. Just put ‘Attention Bernd’ in the subject line so I’m sure to receive it.

And don’t forget to check out the latest in climate hysteria from The Australian Tribune:

‘Tiny Island Ousts Brussels to Dictate Australian Climate Policy’

Have you heard of Tuvalu? The nation of nine tiny islands sits around 3,500 kilometres off Australia’s east coast. It has a population of just under 12,000 people. The size of a small Aussie town.

Yet its government is trying to strong arm Australia’s domestic climate policies.

According to the AAP, prime minister Enele Sopoaga of Tuvalu warned…’

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