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Over the next two days, we’re featuring a special essay series from Matt McCall, editor of Early Stage Investor. In his essays, Matt discusses how getting into a small stock early and waiting for it to make the leap to a big, mainstream stock exchange can mean thousands of percent in gains. Because you’re investing in these stocks before they trade on the major exchanges (which increases liquidity and access to huge pools of institutional capital), it means this style of investing has some similarities to having your money in a private company before its IPO. And with the right company, that can make a huge difference. So, enough introduction from me. Let’s turn to Matt to discuss the power of investing your money in great stocks before they IPO on the regular exchanges. Enjoy. Jeff Remsburg |
How to Make Huge Returns from “Pre-IPO” Investing
Imagine for a moment that you’re the CEO of a company involved in the booming legal marijuana business.
You’re in an industry that is virtually guaranteed to keep right on booming over the next decade. Your business is riding — and will continue to ride — a historic “tailwind.”
Making money in these situations can be like hopping on a boat headed down a huge, fast-flowing river. You can practically float your way to profits.
As that marijuana CEO, what are the most important numbers you look at each day?
Is it a chart that shows sales growth for legal marijuana in the U.S.?
Is it the number of states that have legalized marijuana in some form?
Is it poll numbers that show how many Americans support marijuana legalization?
These are all critical, as are your company’s cash position, sales growth figures and more.
And yet, none are first and foremost on the minds of marijuana industry CEOs. But I’m going to show you what is.
If you were a marijuana exec, you’d probably be obsessed with this chart …
This is the stock price history of Cronos Group since mid-2016. In July of that year, the stock traded for under $0.25 a share. By February of this year, it had soared to $25.10. That’s a more than 10,000% return in less than three years!
That kind of return will have any CEO — or any investor — thinking about early retirement … thinking about complete and total financial freedom.
Want that beach house you’ve been dreaming of? A new Porsche? A 10,000% return on your shares can make those things and a whole lot more possible.
Cronos’ chart is a huge, huge deal in the marijuana industry right now. And yet, there’s a unique reason behind this incredible performance that very few people are aware of. Even fewer understand it.
In this research report, I’m going to explain why Cronos skyrocketed more than 10,000% in less than three years. It’s all due to an anomaly in the financial markets … one that could help us make enormous returns in the coming years.
I’m going to show you how to make a lot of money in legal marijuana using something I like to call “Jumper Stocks.” You could also think of these as “pre-IPO” stocks, since, when done right, you’d be putting your money into these companies BEFORE they IPO on major exchanges — which would likely mean putting your money to work before billions come flooding in from Wall Street and huge multinational companies.
***Jumping From the Minors to the Majors
I get asked almost everywhere I go about marijuana stocks. The buzz continues to build, and it’s easy to see why.
Marijuana and its derivative products were outlawed for decades. But a wave of legalization is starting to sweep the world. Sales in the U.S. and Canada are 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. This will create massive new markets and stock winners.
Ironically, while many U.S. states have legalized forms of marijuana, it is still illegal on a federal level and classified as a Schedule 1 drug. This category is supposed to encompass the most dangerously addictive drugs that have no medicinal value. It includes the likes of heroin and ecstasy.
Marijuana doesn’t belong in that category, and I’m confident it will eventually be reclassified. Until it is, the current legal picture has a lot of ramifications. Few of them matter as much as the ripple effects in financial regulation.
Most marijuana companies cannot trade on the New York Stock Exchange (NYSE) or NASDAQ, the two biggest stock exchanges in the country.
It’s easy to see why. The major exchanges will not approve for trading any company that touches the plant or engages in any activity that is deemed illegal at the federal level. As a result, most marijuana companies trade on what’s called the “OTC market.”
OTC stands for “over the counter.” The OTC market has long been a place where smaller companies make their shares available to the general public. The requirements are not as stringent as the NYSE or NASDAQ and the cost is much lower — both valuable to a business that’s trying to grow.
Here’s where it gets interesting: As legalization spreads and marijuana is reclassified, the door will open for many of these companies to uplist — or “jump” — to the big exchanges. It’s like being called up from the minor leagues to the major leagues. When you’re already invested in these companies and they “jump” to a major exchange, it’s almost like you were in at a pre-IPO price.
There are big benefits for OTC stocks that make that jump. But by the time they do, the first wave of big gains will have already been banked.
That’s especially true in the marijuana industry. A lot of people really want to invest in marijuana stocks. Normally, when a lot of folks want to invest in a sector, there are plenty of stocks for them to buy. But because of the federal marijuana laws, there are not many marijuana stocks trading on a major U.S. stock exchange — today there are less than 10.
As you would expect, the stocks that are listed on the NYSE or Nasdaq receive an extraordinary amount of attention and money. They’ve soared hundreds — even thousands — of percent.
It’s an anomaly that sent the small group of U.S.-listed marijuana stocks flying. It certainly helped companies like Cronos skyrocket in value. It was like 1,000 really thirsty people trying to buy 20 bottles of water.
I have no doubt more marijuana stocks will jump to U.S. exchanges and draw in a lot of investor money. Eventually, there will be enough listed stocks, but that won’t happen for at least a few more years. That gives us a lot of time to make a lot of money … thanks to this financial market anomaly.
To help you understand the kind of opportunity I’m talking about, let’s turn back to my earlier example of Cronos Group.
***Jumper Stocks Over Time
Cronos was the first Canadian cannabis stock to make the leap to a major U.S. stock exchange when it began trading on the NASDAQ on February 27, 2018.
It’s hard to believe it has been only about one year since Cronos became the first company with direct ties to marijuana to jump onto a major U.S. stock exchange. This shows just how new this phenomenon is. We are still in the early stages here, which is exactly why it is so compelling and perfect for us here in Early Stage Investor.
For the foreseeable future, identifying these stocks before they “IPO” on a major exchange will be one of the most reliable strategies for finding big winners in the marijuana industry.
Cronos is a great example of how to profit by investing in stocks before they hit a major American exchange. Let’s go back to December 27, 2017 — prior to the company announcing it had filed to list on the NASDAQ. It was trading on the OTC market under the symbol PRMCF.
In a newsletter I was writing at the time called NexGen Profit Multiplier, I recommended Cronos when it was trading at $5.50 on the OTC exchanges. Given the newsletter’s short-term trading strategy, we sold the stock in just 48 hours — and locked in a nearly 50% profit. Pretty good for a couple of days’ work.
Buying Cronos on the OTC was somewhat risky, especially considering there was no precedent of marijuana companies jumping to a major stock exchange. But the risk was far outweighed by the huge upside potential in marijuana stocks, especially since we were investing in a leader of a growing industry.
It was a fantastic short-term win, but now let’s look at Cronos with the longer-term strategy we employ here in Early Stage Investor.
On February 27, 2018, Cronos stock jumped to the NASDAQ and made history as the first Canadian marijuana company to list on a major U.S. exchange. Cronos closed the Friday before the announcement at $7.01. One week after the announcement, it traded as high as $10.39 — a rally of nearly 50%.
Almost three months later on May 23, 2018, Cronos made another jump in Canada when it moved from the TSX Venture Exchange to the Toronto Stock Exchange (TSX). Two weeks later, the stock was up 28%. (Note: Most Canadian marijuana companies begin their public lives on the TSX Venture Exchange. The jump up to the TSX is the equivalent of uplisting from the OTC to the NYSE in the United States.)
As you can see in the chart above, both jumps resulted in big short-term profits. But the long-term benefits of uplisting to a major stock exchange are what my Jumper Stock System is based on. Fourteen months after my initial recommendation, Cronos trading over $22 — an increase of 300%.
Holding on for longer-term gains from the Jumper Stock effect is worth it, wouldn’t you say?
Let’s stay with Cronos as an example. Two months before it jumped to the NASDAQ, its average daily volume was 280,000 shares. Today, its average daily volume is nearly 16 million shares. That’s a 5,600% jump in average volume in 14 months and a direct result of the uplisting.
Our goal is to identify the stocks with the ability to jump 10X in the next few years. These are the kinds of gains that can change your life. .
***Starting Early
Only a handful of marijuana companies made the jump to a major U.S. stock exchange in the last year. They are some of the biggest names in the world when it comes to marijuana — Canopy Growth, Aurora Cannabis, and Aphria.
When Canopy was trading on the OTC market in April 2018, the company was known as a leader to those of us who follow the marijuana industry closely. Most investors may have heard the name in passing but had no real knowledge of the stock. And more importantly, they did not own shares of Canopy.
On May 24, 2018, Canopy became the first marijuana company to trade on the NYSE. The first day of trading was unimpressive to say the least. The stock fell 6% and shortsighted critics concluded that marijuana stocks were not ready for the big time. Well, we all know by now that they couldn’t have been more wrong. Canopy more than doubled just six months after the jump.
Because only a few marijuana stocks have successfully jumped to a major stock exchange, there are plenty more opportunities in the future. My system has already identified several companies that I believe will announce their intentions to uplist in the near future.
First, it is important to explain why stocks that make this jump are good investments. And just as important is my Jumper Stock System for identifying the best opportunities for us.
We’ll pick up with that in tomorrow’s edition of the Digest.
Until next time,
Matt McCall
