This week will see progress made toward federal banking reform related to marijuana, as well as hemp/CBD guidelines
The momentum keeps building for CBD and marijuana …
Regular Digest readers know that we’re incredibly bullish on the legal marijuana trend. That’s because it’s less of a “trend” in the traditional sense, and more of a seismic cultural-shift that’s reshaping society and creating a trillion-dollar investment opportunity.
For example, research firms estimate the U.S. market for legal marijuana products will reach $20 billion next year alone. That’s up from a mere $5.4 billion in 2015. And by 2030? The size will skyrocket to $75 billion.
Each week it seems we get reports of some new marijuana-related domino tipping over, bringing us closer to the watershed moment of full federal legalization. As regular Digest readers know, when that happens, it will be off to the races for investors.
In today’s Digest, let’s highlight two additional dominos that are tipping this week. It’s just more evidence of the inevitability of marijuana legalization.
***Today, a key hearing is happening in the Senate regarding marijuana and banking
The U.S. Senate Committee on Banking, Housing and Urban Affairs is holding a hearing entitled “Challenges for Cannabis and Banking: Outside Perspectives.” The subject will be the marijuana industry’s lack of access to traditional banking services.
This hearing marks the first time the Republican-controlled Senate has agreed to discuss the SAFE Act (Secure And Fair Enforcement Banking Act). If passed, this legislation would allow banks to offer services to marijuana companies in compliance with state law.
This is big. As an illustration, here’s an excerpt from the prepared remarks from Senator Cory Gardner (R-Colorado):
(This hearing) is an important step toward the federal government waking up to the reality that the cannabis issue is not going away and needs action … There has been a dramatic shift in Americans’ views of cannabis in recent years … the states are leading on this issue, and the federal government has failed to respond … We have to act.
For any readers who are less familiar with what’s been going on, marijuana’s illegal status under federal law means getting banks to accept deposits from marijuana-related companies is extremely difficult. That’s because any bank that does business with marijuana companies could be charged with “aiding and abetting” — which is a federal crime. The result is that many marijuana companies are all-cash operations.
As you can imagine, “all cash” presents safety challenges to marijuana companies. But beyond that, given our increasingly cashless society, as well as the consumer’s expectation for a convenient buying experience, in order for the marijuana industry to make its next quantum leap, banks need to be in on the game.
So far, committee Chairman Mike Crapo (R-ID) has been a roadblock to meaningful banking reform, saying “as long as cannabis is illegal under federal law, it seems to me to be difficult for us to resolve” the financial services issue.
But pressure continues building. We now have 50 state banking associations, the National Association of State Treasurers, the top financial regulators of 25 states, a majority of state attorneys general and the governors of 20 states all getting behind the SAFE Act.
Though we don’t expect any immediate policy reversal from today’s hearing, it’s encouraging to see Crapo and the committee taking action. We continue to believe reform is simply a matter of “when” not “if.”
At this point, I would usually write “we’ll let you know the outcome of today’s hearing,” but in this case, we’ll do you one better — “we’ll let you know the outcome courtesy of our own Matt McCall, who’s at the hearing right now.”
Matt is our resident marijuana expert. He’s also a big believer in “boots on the ground research.” That’s why he was in China weeks ago, researching opportunities there, and is now in Washington D.C., listening to the hearing. This level of research is often what separates good from great investors.
We’ll get the update from Matt and will pass it along to you here in the Digest.
***Meanwhile, on Thursday, another Senate committee will be holding a hearing to discuss hemp production
Attendees will include individuals from the U.S. Department of Agriculture (USDA), the Food and Drug Administration (FDA) and the Environmental Protection Agency (EPA). Though the hearing notice doesn’t delve into the meeting’s proposed details, the meeting’s title — “Hemp Production and the 2018 Farm Bill” — suggests the conversation will involve federal guidelines around hemp and mostly likely, CBD.
Since the historic Farm Bill of 2018 that legalized hemp and its derivatives, there’s been huge interest in developing USDA and FDA regulations for hemp — particularly for CBD.
If you’re less familiar with CBD, I’m going to turn to Matt and one of his recent issues of Investment Opportunities:
CBD is shorthand for cannabidiol, which is one of more than 400 chemical compounds found in a cannabis plant. Of those 400, over 60 are unique to the cannabis plant, and they are referred to as cannabinoids.
CBD is what’s called a non-psychoactive compound found in both the cannabis and hemp plants. That’s a fancy way of saying CBD will not get you “high.”
It’s actually been used by wellness and medical professionals for years as an alternative to traditional pharmaceuticals to treat everything from anxiety and depression to chronic pain to the reduction of inflammation to childhood epilepsy. If it were a drug, we would call it a wonder drug.
***CBD is wildly popular right now due to its reputation for treating everything from inflammation to depression to epilepsy
Given this, companies are adding it as an ingredient in just about everything — makeup, tea, pet treats, soft drinks. This has been happening even though the FDA has expressly prohibited companies from adding it to food, drinks and dietary supplements.
Last year, retail sales of CBD products in the U.S. were estimated between $600 million and $2 billion, according to the investment research firm Cowen. By 2025, the group conservatively forecasts sales to reach $16 billion.
This huge growth and CBD’s popularity is leading to the need to regulate the industry to ensure safe products that do what they claim they’ll do. So far, FDA guidelines have been slow (to non-existent) in coming. Because CBD is an FDA-approved “drug” yet it hasn’t previously been added to the food supply, former FDA Commissioner Scott Gottlieb said the process to create an alternative CBD rule-framework could take years without congressional action.
Many politicians are pushing back. For example, last month, Sen. Ron Wyden (D-OR) wrote a letter, urging the FDA to speed up the process, attacking the FDA’s timeline as “fully unacceptable.”
Other pressure for faster guidelines has come from the FDA’s “public comment” period for CBD regulations, which closed one week ago. Individuals and organizations filed more than 4,400 submissions, which will influence the FDA’s rulemaking on CBD.
In response to this pressure, two weeks ago, the FDA reported that it was “expediting” its efforts to provide rules for CBD. It plans to publish a report on its progress by early fall.
We expect this Thursday’s meeting will continue the positive momentum toward meaningful CBD regulation.
***Meanwhile, marijuana continues its push into the mainstream as new marijuana-themed ETFs are coming to market
In April, the marijuana-themed ETF “YOLO” (which stands for “you only live once”) was launched by AdvisorShares. The fund’s actual name is theAdvisorShares Pure Cannabis ETF. And recently, three new ETFs have started trading or announced that they are about to: The Cannabis ETF(THCX), Amplify Seymour Cannabis ETF (CNBS), and Cambria Marijuana ETF (TOKE).
As these new investment vehicles hit Wall Street, it begs a question — are marijuana ETFs a good place for your investment dollars?
Matt McCall, who is one of the smartest, most successful veterans in the marijuana space, recently wrote on this topic to subscribers. It’s a common question for newer marijuana investors who aren’t sure where to start.
Investing in a marijuana ETF is better than not investing in marijuana at all. If that’s what makes you comfortable, you should do it. I’d rather see you get at least some exposure to this incredible opportunity.
On the other hand, there is a better way to get all of the benefits of an ETF but make more money. You basically build your own smart ETF, a strategy we use often in my investing services.
Matt explains that ETFs, which can hold dozens or even hundreds of different companies, can be a helpful way to get diversified exposure to marijuana. But the problem is because ETFs hold so many stocks, an investor is almost guaranteed to own many average companies — and possibly even some downright bad ones.
Back to Matt:
By purchasing a handful of the best companies, you avoid owning the weak players. This gives you big upside potential while still providing you with diversification. It’s a smart way to invest in big themes like marijuana. You get an excellent balance of risk and reward.
If you’re still a bit unsure on what to look for in a marijuana company, that’s understandable. In such a fledgling industry, many traditional valuation metrics don’t apply quite as cleanly as they would in a mature industry.
So, if you’re looking for help, Matt has put together a free video series called Marijuana Masterclass. It involves a 3-step strategy for identifying those select marijuana stocks that are most likely to outperform. Click here to learn more about this free video series.
In the meantime, we’ll let you know how this week’s hearings turn out.
Have a good evening,
Jeff Remsburg
