More evidence that, despite massive gains for marijuana investors so far, the best is still ahead
Unless you have been deliberately ignoring the financial media for the past many months, you’ve heard the buzz surrounding investing in legal marijuana.
Yet most investors — even the ones who have been paying some attention — may not fully grasp the enormity of what’s happening.
There’s also a misunderstanding about the life-changing investment wealth that’s still in front of us, despite the big gains that marijuana has already provided for some investors.
So, on this first day of March, let’s look back over February — it was a remarkable month for the marijuana complex. In doing this, we’ll review some of the events that continued to propel the industry forward, then we’ll look at why we’ve only just scratched the surface.
***February was a huge month for marijuana on numerous levels: state, congressional, presidential, and institutional
Let’s start on the state level …
In February alone, bills to legalize marijuana advanced through important committees in at least four different states.
In Hawaii, back on February 7th, a unanimous vote by the Senate Judiciary Committee approved a marijuana legalization bill.
In New Mexico, House and Senate committees approved two different legal marijuana bills. Gov. Michelle Lujan Grisham (D) is in favor of legalization. She said she would sign a bill into law, given that it contains certain public safety and health protections.
In Vermont, the Senate Judiciary, Finance, and Appropriations Committees all voted to approve a bill involving legalized marijuana sales.
And just two days ago, in New Hampshire, a bill to legalize marijuana was approved by the state House of Representatives.
******If you’ve been following Matt McCall, you know why states are racing toward legalization
Matt McCall is our resident marijuana expert and the editor of the newsletter Investment Opportunities. It was all the way back in his August issue that Matt identified a key reason we’d see a domino effect of marijuana legalizations on the state level. From Matt:
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.)
Last week, we got more confirmation that Matt’s call was spot on. From AP News:
The governors of Illinois and Connecticut each suggested legalizing recreational marijuana while pitching state budget proposals Wednesday.
Illinois Gov. J.B. Pritzker and Connecticut Gov. Ned Lamont, both Democrats, proposed legalizing recreational marijuana and implementing a system for regulating and taxing retail sales during separate addresses announcing each’s budget.
“The responsible course of action is to embrace some near term reasonable and realistic new revenue,” Mr. Pritzker said. “Let’s begin with this: By legalizing and regulating adult-use cannabis in this legislative session, we will create jobs and bring in $170 million in licensing and other fees in this fiscal year 2020.”
For a recent article on tax revenues from additional states, click here.
Being realistic, not all of these state bills will be immediately approved and signed into law. But the volume of legalization legislation that’s advancing is evidence of marijuana’s momentum today, and a foreshadowing of its reality tomorrow.
***Now, onto the congressional level …
In February, a House Financial Services subcommittee held a hearing to discuss marijuana companies and their access to the traditional banking industry. As we noted in our February 13th Digest:
… there’s one major headwind facing legalized marijuana — the U.S. government. Marijuana is still illegal on the federal level.
… with marijuana still illegal under federal law, 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.
This issue has been a key concern for the industry as well as policymakers who understand that forcing marijuana companies to operate on a cash-only basis poses significant public safety risks.
This past Tuesday, Federal Reserve Chairman, Jerome Powell, again requested clarification on this matter when he spoke before the Senate Finance Committee.
Sen. Bob Menendez (D-NJ) asked Federal Reserve Chairman Jerome Powell whether banks “need clarity” on how to deal with cannabis businesses in legalized states.
“I think it would be great to have clarity,” Powell said. “Financial institutions and their regulators and supervisors are in a very difficult position here with marijuana being illegal under federal law and legal under a growing number of state laws.”
“It puts financial institutions in a very difficult place. It puts supervisors in a difficult place too,” he said. “It would be nice to have clarity on that supervisory relationship.”
The financial services legislation has the potential to clear the congressional panel within the next several weeks.
***On the presidential level, more 2020 hopefuls are coming out in support of legalization
In our February 18th Digest, we highlighted how Sen. Cory Booker from New Jersey, and Sen. Kamala Harris from California — both seeking the Democratic nomination for president — have called for the legalization of marijuana at a federal level.
We can now add two more names to that list.
Last week, Minnesota senator and presidential hopeful, Amy Klobuchar, came out in support of marijuana legalization. But the bigger name was Elizabeth Warren.
According to news reports:
A reporter asked Warren how she currently felt about cannabis reform, and the senator replied that she “voted in favor of legalizing marijuana in Massachusetts” and that she believes “we should legalize it nationally.”
“I think it makes no sense for marijuana to be a Schedule I drug [under the Controlled Substance Act], which means the federal government has decided in advance that there is no medicinal value to marijuana and just completely bans it and makes it very difficult to do research,” Warren said in the new remarks in New Hampshire.
These marijuana endorsements mean one thing: All presidential contenders are going to have to take a public stance on marijuana legalization, and that will thrust cannabis even further into the spotlight.
***Finally, the marijuana industry saw February advances on the institutional level as well
The California Public Employees’ Retirement System, usually referred to as “Calpers,” is the biggest pension fund in the United States, managing some $300 billion of assets (for context, that’s about the same size as Pakistan’s entire GDP.)
In recent weeks, we learned that in the fourth quarter of last year, Calpers more than tripled its holdings of Tilray, which is one of the largest producers of medical cannabis in the world.
Calpers also added to its position in Constellation Brands. Constellation produces alcoholic beverages, yet also owns a 37% stake in the Canadian marijuana producer, Canopy Growth.
***Pulling back, is all of this news actually evidence that marijuana has come too far, too fast? Is the industry now in a bubble?
To answer this, let’s return to our marijuana expert, Matt McCall. Here’s what Matt recently wrote to subscribers on this subject:
Let’s just dispense with the idea of a marijuana “bubble” right away. It’s nonsense.
Bubbles are formed when valuations get out of hand in a sector that is a fad.
Marijuana is not a fad.
Marijuana stocks have some of the biggest long-term potential we may ever see in our lifetimes. A wave of legalization is just now starting to sweep the world. Sales in the U.S. and Canada are already growing at more than 20% per year … and will do so for many years.
The legal marijuana industry is set to grow 10-fold over the coming decade.
In other words, we are in the early innings — maybe even still the top of the first — in a nine-inning game. This will create massive new markets and stock winners.
If there’s anyone who can speak to marijuana “winners,” it’s Matt. At the time of this writing, his Investment Opportunities subscribers are sitting on 55% gains in Canopy Growth, 91% gains in Khiron Life Sciences, and 144% gains in Innovative Industrial Properties.
However, despite gains like this, there’s still more wealth to be made in front of us than there has been made behind us. Back to Matt:
Marijuana has real-life uses and benefits, and they are multiplying — from medical to recreational to the boom of cannabidiol (CBD). In fact, there is a clear path to marijuana at least competing with alcohol and perhaps even surpassing it in size over the next decade.
… future gains are worth banking on in the U.S. With legalization spreading, the industry is on track to become huge. Consider this: California’s marijuana market alone is already bigger than all of Canada. And yet, U.S. stocks trade at steep discounts to their Canadian peers.
That’s an opportunity, not a bubble. In fact, the legalization of marijuana is one of the great opportunities of the next decade.
We’re incredibly proud of Matt’s track record with marijuana. If you’d like his help in navigating the cannabis investment industry, click here.
The marijuana industry is experiencing tremendous growth, yet all signs are suggesting this is still the beginning. We’ll continue to keep you up to date.
Have a good evening,
Jeff Remsburg
