A bipartisan marijuana reform bill, Governor Cuomo pledges recreational legalization in New York, and more Wall Street acceptance
In last Wednesday’s Digest, we discussed the power of investing with “tailwinds.” These are those trends that reshape our world. In doing so, they often create massive wealth for investors who align themselves wisely.
One of the trends we touched on is legal marijuana. Marijuana has been outlawed most everywhere for decades, but a wave of legalization around the globe is changing that. This is creating new markets and huge investment opportunities.
***Last week saw three news stories adding to marijuana’s momentum
First, on the National level …
The 116th Congress went into session last week and already a bipartisan marijuana bill has been introduced in the House.
Steve Cohen (D-TN) and Don Young (R-AK) re-introduced the Compassionate Access, Research Expansion and Respect States (CARERS) Act. The legislation would allow states to establish their own medical cannabis programs independent of federal intervention. Basically, the feds would be hands-off regarding how states legalize and regulate medical marijuana.
The CARERS Act was first introduced in 2015 and again in 2017. We’ll see how far it gets this time (it’s House Resolution 127 if you want to follow along). Whether or not it passes, it’s evidence of growing pressure on elected officials to review their position on medicinal marijuana.
Last month, New York Governor Andrew Cuomo announced that he will be pushing to legalize recreational marijuana in 2019. Last week, he took a step toward making good on that promise.
***Second, on the state level …
In his inaugural speech on Tuesday, Cuomo reiterated his strong support for legalizing marijuana.
“When they write the history books and ask what did we do … let New York’s answer be that in this defining moment we brought healing and light and hope and progress and action,” he said in his remarks as prepared for delivery. “That New York led on legalizing recreational marijuana … “
He also promised that within his first 100 days, he’ll propose “the most progressive agenda this state has ever seen, period.” Marijuana legalization will be part of that.
Estimates suggest a New York legalization could bring in $1.3 billion in annual tax revenue at the state and local level. Obviously, this makes legalization enticing for cash-strapped politicians like Cuomo.
This is no surprise for readers of Matt McCall’s Investment Opportunities newsletter. Matt is our resident marijuana investment expert. He wrote to this point back in his August issue:
“Each year, more states join the movement, and each time that occurs it puts pressure on a neighboring state to consider legalization. (Think about the potential tax dollars that would go across state lines.)“
Coincidence that neighboring New Jersey is close to legalizing marijuana, with Governor Murphy possibly signing a bill by February?
***Third, last week saw marijuana support on the investment level …
Wall Street took another step toward the continuing mainstream acceptance of legalized marijuana. That happened when J.P. Morgan began coverage of GW Pharmaceutical.
GWPH is the manufacturer of Epidiolex, the first cannabis-based drug to receive FDA approval. Made from CBD, Epidiolex could surpass annual sales of $1 billion by 2023, according to research reports.
***CBD also happens to be one of Matt’s favorite ways to invest in marijuana
If you’re less familiar with CBD, I’ll let Matt get us on the same page …
“CBD oil is derived from marijuana and hemp plants, and it has 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 inflammation to childhood epilepsy.
On December 11, the Senate passed the 2018 Farm Bill … The bill legalized hemp — a cannabis derivative — for the first time in nearly a century, opening up what could be a $20+ billion industry in a relatively short amount of time. As hemp-derived cannabidiol (CBD) oil hits the mainstream, we’re looking at an industry with the potential to be 55 times larger in just five years.”
For the record, “55 times larger” is enough to turn a $10,000 investment into more than $500,000.
Last, as fun, anecdotal evidence of CBD’s popularity and investment potential, I’ll add that the term “CBD gummies” reached No. 3 on Google’s most popular food search terms in 2018.
***Despite this potential, investors eyeing marijuana/CBD need to be even more careful in 2019
According to experts, this is the year we’ll see a widening gap between leading marijuana/CBD companies and the rest of the pack. Up to this point, investors have enjoyed the momentum of “a rising tide lifts all the boats.” Perhaps that’s no more.
Craig Johnson, an analyst at Piper Jaffray, suggests we’re going to see the same “boom and bust” cycles that have characterized other emerging industries. Think tech stocks in 1990s and early 2000s. That means while there will be some huge winners, there will also be many losers and go-nowhere investments.
“Right now, it’s a little bit like going to the casino,” Johnson said.
Matt made this point to his Investment Opportunities subscribers months ago:
“The early days of ANY new industry will be more volatile than the broad market. We have to be prepared to weather large ups and downs. That’s just part of the game when it comes to investing in new industries with huge potential.“
Given this, Matt suggests a specific approach to investing in marijuana companies.
“When it comes to the marijuana mega-trend, our best strategy is to build a basket of stocks. You can look at this as if you are building your own ETF, but you don’t have to pay the fees and you aren’t stuck with a bunch of other stocks you don’t want to own.“
If you haven’t yet aligned yourself with this CBD tailwind, Matt believes there is still enormous wealth to be made. Matt again …
“According to Brightfield Group, the hemp-CBD market will reach $591 million this year. And by 2022, it will soar to $22 billion. That is a five-year compound annual growth rate of 132% and a 40-bagger!“
If you missed Matt’s pick for InvestorPlace’s Best Stocks for 2019 contest, you can read about it for free here (hint: it’s his favorite way to play CBD — the number one hemp grower in the U.S.).
Despite this single stock recommendation, remember Matt’s “basket” investment approach for safely investing in marijuana in 2019. And if you’d like to read more from Matt, including the other marijuana/CBD investments he’s excited about, click here.
Have a good evening,