What this financial entrepreneur is teaching doctors

Tuesday, 22 October 2019
Adelaide, Australia
By Bernd Struben

  • The empire strikes back
  • Why crude could slide much further
  • Greens could drag down banks

Doctors know absolutely nothing about it – they weren’t taught marijuana in medical school.’

Joshua Fegan, Althea Group founder

How do you amass a $56 million fortune by your 34th birthday?

If you’re Joshua Fegan (quoted above) the answer is pot stocks.

More specifically, the 28% stake he holds in ASX listed pot stock, Althea Group Holdings Ltd [ASX:AGH]. A company he founded. And whose share price gains since its initial public offering (IPO) in September 2018 have earned Joshua 57th place on the 2019 Financial Review Young Rich List.

Althea Group is focused on medicinal marijuana. Something he says most Aussie doctors know nothing about. Largely, he says, because, ‘There is still the stigma attached to it from being an illicit drug for such a long time.’

Hence, as reported by the Australian Financial Review (AFR):

Half of Althea’s 40 staff are dedicated to visiting doctors to educate them about the company’s product range, which includes four cannabis oils that can be administered under the patient’s tongue with a syringe.

Like most pot stocks, Althea has seen its share price retreat from its all time highs. For Althea that high was hit on 15 July, when shares traded for $1.23. Since then the share price has tumbled back to 57 cents. Though that’s still up 111% from the 27 cents you could have bought shares for on 2 January.

And Joshua sees huge growth opportunities ahead. Particularly in the UK’s nascent medicinal marijuana market, where he estimates some 900,000 patients could benefit from medicinal marijuana.

To date he’s been sourcing his cannabis from Canada. But with the massive growth potentials offered by the medicinal marijuana market, that’s set to change.

From the AFR:

‘[F]rom next year he will grow his own, having received final approval for a facility at Skye, south-east of Melbourne. It will initially produce three tonnes of dried medicinal cannabis flowers a year, with capacity to expand to 30 tonnes.

Althea Group isn’t the only ASX listed pot stock to enjoy double-digit share price gains this year. And with the recent pullback among most cannabis related stocks, Sam Volkering believes now is an opportune time to get into the smaller Aussie pot stocks with the greatest growth potential.

You can find more on Sam’s top two recommendations here.

Meanwhile, back in Canberra…

The empire strikes back

Medicinal marijuana was given the initial green light in Australia back in 2016.

We’re unsure of where Attorney-General Christian Porter stood on that issue as an MP for Pearce. But we suspect he may have been among those dragging their heels in offering ill Australians access to this one illicit drug.

In either case, Porter is digging in against growing moves to legalise the personal use of cannabis.

As you likely know — and as we discussed here last week — the ACT recently voted to legalise the possession of up to 50 grams of dried cannabis. And to allow residents to grow two plants.

That, not surprisingly, sticks in the craws of an array of federal pollies. Like Porter.

From The Australian:

Mr Porter, who has been scrutinising the legislation for a couple of weeks, said the ACT bill had failed to override Commonwealth law that makes it illegal to possess cannabis.

“They’re terrible laws for a variety of reasons… So my advice and the advice that I’ve provided to the ACT Attorney-General is that it is still against the law of the Commonwealth to possess cannabis in the ACT.”

I’m interested to hear your thoughts on this. So I’ll open this one up to our readers.

Should the territories and states be allowed to determine the legality of the personal use of cannabis within their borders? Or is that solely the realm of the big boys and girls in Federal Parliament?

Send your replies to letters@portphillipinsider.com.au with the subject line ‘local or federal’. If we get some good responses, I’ll publish them here.

Now, to the markets, which have largely edge up on renewed hopes of resolving the trade war. Or at least of getting phase one of a new deal signed…out of three…

Markets

Overnight, the Dow Jones Industrial Average closed up 57.44 points, or 0.21%.

The S&P 500 closed up 20.52 points, or 0.69%.

In Europe the Euro Stoxx 50 index closed up 20.67 points, or 0.58%. Meanwhile, the FTSE 100 gained 0.18% and Germany’s DAX closed up 114.36 points, or 0.91%.

In Asian markets Japan’s Nikkei 225 is closed for Enthronement Ceremony Day. China’s CSI 300 is down 0.20%.

In Australia, the S&P/ASX 200 is up 24.29 points, or 0.37%.

West Texas Intermediate crude oil is US$53.43 per barrel. Brent crude is US$58.96 per barrel. (More on oil below…)

Turning to gold, the yellow metal is trading for US$1,484.12 (AU$2,161.55) per troy ounce. Silver is US$17.55 (AU$25.56) per troy ounce.

One bitcoin is worth US$8,204.45.

The Aussie dollar is worth 68.66 US cents.

Why crude could slide much further

Both crude oil benchmarks we track here are down a few cents per barrel since this time yesterday.

WTI is now down some 20% since its April peak. But with the world awash in oil it was overpriced then. As I’ve been banging on about here in the Insider — barring a full scale war in the Persian Gulf — I expect oil to trend lower heading into 2020. Another 10–20% price fall is likely by mid-next year.

Remember, today’s prices come despite US sanctions against oil-rich Venezuela and Iran. Not to mention the drone and missile attack against Saudi Arabia’s oil facilities temporarily knocking out half the kingdom’s production capacity.

And the sagging price comes despite the extended production cuts from OPEC+. Though the Saudis are doing the heavy lifting there. Russia (the ‘plus’ member) looks likely to pump more oil in 2019 than it did last year.

The mainstream pundits are largely attributing the sliding price to the demand side. Much as they did when crude fell off a cliff in late 2018. As Bloomberg notes, ‘Bloomberg Economics estimates that weak demand — linked to the impact of the trade war — accounts for 70% of the decline.

Sure, slowing global growth — especially a marked slowdown in China — is putting a damper on the demand side. But even if demand picks up there’s a flood of oil ready to meet it. So I’d flip Bloomberg Economics’ stats on their head.

Oil prices are low due 30% to weak demand and 70% to the ongoing supply glut.

Could WTI fall back to US$40 per barrel in 2020? You bet.

Greens could drag down banks

More headwinds are blowing across the horizon for Australia’s banks.

No, it’s not nimble fintech companies eyeing a piece of the Big Four’s business. Though with ‘open banking’ set to come into force in Australia next February, there are plenty of small tech savvy companies with big ambitions.

(You can get Ryan Dinse’s top bank disruptor picks here.)

This time the headwinds come in the form of environmentally…erm…conscious investors.

Green activist groups Australasian Centre for Corporate Responsibility (ACCR) and Market Forces are beating the climate change drum. And they’re demanding the banks march to their tune.

From The Australian:

National Australia Bank and ANZ Bank have been hit with a second batch of shareholder resolutions [from ACCR], calling on the lenders to withdraw from industry associations with advocacy records inconsistent with the climate goals of the 2016 Paris Agreement.

The article notes that one week ago:

Market Forces targeted NAB, Westpac and ANZ, calling on the three banks to lower their exposures to fossil-fuel assets, including a complete ban on thermal coal in developed economies by 2030.

Now maybe you’re a climate change sceptic. Or maybe you believe the science on human induced climate change is airtight.

Both valid opinions.

But — aside from the fact that the banks will likely cave in to activist investor demands and see their profitability slide further — your opinion on climate change doesn’t matter.

Why?

Because if the mainstream models are correct, it will take massive, coordinated global action to make any dent in the predicted rising temperatures. But that’s not how our world works. It’s never going to happen. And these activists know this. Which is why the total ban on thermal coal funding they’re demanding applies solely to developed nations.

That, folks, excludes the likes of India and China…the world’s most populous nations and leading polluters.

But the list of nations where these activists would still ‘allow’ the banks exposure to thermal coal is far longer than that. Aside from most every nation in Africa and South America, we’ll let Donald Trump fill in a few more for you, courtesy of Bloomberg:

Seven of the world’s 10 wealthiest economies, Trump said, claim developing-nation status — Brunei, Hong Kong, Kuwait, Macau, Qatar, Singapore and the United Arab Emirates. So do Mexico, South Korea and Turkey, who are all members of the Group of 20 and the Organization for Economic Cooperation and Development, Trump said.

Surely the boffins leading ACCR and Market Forces know global actions are doomed without the entire globe pitching in. It’s like trying to get silence in a library by demanding the three people playing high quality drums inside stop doing so while allowing seven other people to keep banging their pots together.

So could these activists have a different goal? Like global wealth redistribution on a level never imagined before?

Some of their foot soldiers might not know this. But that’s precisely what measures like those proposed by Market Forces will usher in. Without cooling the planet by even a fraction of a degree.

We’ll leave it there for today. Be sure to tune back in tomorrow.

Cheers,
Bernd