I wanna be a billionaire so f**king bad
– Bruno Mars
Dear Diary,
Yesterday, the Dow rose 91 points. But markets are generally sluggish. It is vacation time. People have better things to do than watch Bloomberg terminals and bet on stocks.
So, let us also turn our attention to other things. Specifically…
How to get your share of the pot!
“Would you like to make a billion dollars?” begins an email from an old friend. He was completely serious.
“I don’t know if you’ve been following the development of the medical marijuana business in Colorado, California, Washington and elsewhere. But this much is clear – it is fantastically lucrative.”
Don’t Bogart that Joint…
Recently, at a party, a friend took a joint out of his pocket, lit up, and passed it around. Imagine our surprise! We had not seen marijuana in use since 1969.
We looked forward to taking a deep toke… filling our lungs… and reliving those happy times. (Would someone put “Sympathy for the Devil” on the record player, please…) But the joint never made it to us. It went up in smoke, “bogarted” by our friends.
The resurfacing of marijuana in middle-class settings, and our own juvenile reaction to it, made us wonder: Are baby boomers getting younger? If so, maybe investing in the medical marijuana business is a good idea.
Our friend thinks so. And he’s not the only one. Only a few months ago, another friend offered us the opportunity to invest in a similar marijuana venture in Canada. We declined. (Alas, we may never make it to true billionaire status!)
Marijuana, the story goes, will soon be made widely available for people who need it. And to those who don’t. Especially the baby boomers. They are the target audience. They have no fear of the weed… and they have plenty of aches, pains and anxieties that it may help.
There is some research suggesting that smoking too much pot when you are young may stunt your intellectual or emotional growth. It may also harm your career or your family life.
But for the baby boomers these things pose no threat. They already stunted their intellectual and emotional growth in the 1960s. And they made a mess of their careers and families in the 1970s, 1980s and 1990s. Now, they have to live among the debris… with few responsibilities and lots of time on their hands. Many think pot helps.
A Marijuana Monopoly?
Could pot help their finances get high too?
At first, we dismissed the possibility. Marijuana is too easy to grow. It will be cheap and readily available to everyone. Profit margins will be narrow, with no moat to keep out new competitors.
But the cronies are not so dumb.
If marijuana were simply legalized, prices would probably be low… supplies abundant… and profits few.
That may be the real reason it is has not been made legal already: There was no profit in it. The dealers… the police… the prisons…all colluded to keep it illegal.
But what if, instead of legalizing it, you could turn it into a state-sponsored monopoly, like state lotteries?
Licenses could be issued to cronies who contribute to political campaigns. Only a few carefully monitored growers would be permitted… distribution would be tightly controlled… and competition would be prohibited. Then there would be fat profit margins to divvy up.
Our friend comments:
“We have a friend working in the state legislature. He just happens to be intimately involved in the governor’s initiative to legalize medical marijuana.
We have made substantial investments in political contacts in [the state capitol].”
The fruit of these investments, he goes on to say, will be an explicit licensing system, giving a few well-connected players what amounts to monopoly franchises in the pot space.
Even in the weed space… the fix is in.
Regards,
Bill
Market Insight:
Caveat Emptor When It Comes to Investing in Pot
From the desk of Chris Hunter, Editor-in-Chief, Bonner & Partners
We don’t know much about marijuana investing (or about the type of parties Bill goes to)… but we do know that marijuana is going mainstream.
Just check out this recent full-page ad in the New York Times from marijuana dispensary listing company Leafly. (Which parodies the Nancy Reagan-inspired “Just Say No” anti-drugs campaign.)
Meanwhile, research by the ArcView Group estimates the size of the legal marijuana market will grow this year to $2.8 billion from $1.5 billion in 2013.
And that may be a fraction of the potential total, if we continue to see a drop in prohibition of pot. The United Nations puts the size of the illegal marijuana market in the US at between $40 billion and $50 billion a year.
Right now, 23 states and the District of Columbia have passed laws to legalize medical marijuana. There are only two states – Washington and Colorado – that have legalized marijuana for recreational use. But another nine states are pushing to pass full legalization.
This reflects broad-based support of legalization. Last year, a Gallup poll showed that 58% of Americans now favor legalization – the first time that a majority has been in favor of legalization in close to 50 years.
If you’re tempted to invest in the trend toward pot legalization you’ll need to have your wits about you.
There are plenty of tiny and illiquid over-the-counter stocks that have shot to the moon. But many of those have plummeted back to earth, too, such as marijuana dispensing machine company Medbox, Inc. (PINK:MDBX).
Source: OTC Market
Something a little more stable would be British biopharmaceutical company GW Pharmaceuticals plc (NASDAQ:GWPH).
It specializes in creating marijuana-based prescription medicines (mainly for multiple sclerosis sufferers as well as for sufferers of cancer and nerve pain).
This company has a market cap of more than $1.5 billion. And its lead product, Sativex, is approved for use in more than 20 countries (and looks likely to get approval in the US soon).
But unless you know a heck of a lot about the legal marijuana business – probably the best way to invest in this industry is through an ETF.
No such thing exists… yet. But it won’t be long until Wall Street companies try to get a piece of the action.
Until then, it’s very much a case of caveat emptor when it comes to investing in pot.