More Tailwinds for Legalized Marijuana, Including How It Will Play a Role in the Next Presidential Race
“The gains are already huge — is it too late to get in now? Is this a bubble?”
That’s a common refrain from some investors sitting on the sidelines when they see big returns piling up from a major investment trend.
Some of the reader feedback we’ve received poses this question about legalized marijuana.
This fear of missing out on gains is understandable — for instance, in yesterday’s Digest, Luis referenced Innovative Industrial Properties (IIPR) which is a marijuana stock from Investment Opportunities editor, Matt McCall. As I write, IIPR is up nearly 90% since Matt’s recommendation back in August.
Luis also noted a second pick from McCall — Elixinol (ELLXF). It is up 66% since Matt recommended it … just two months ago.
With gains like these, for individuals who haven’t yet begun investing in legalized marijuana, is it too late? Is this a bubble that’s about to burst?
In short, no. The legalized marijuana trend is still very much in its infancy, and on top of that, momentum has never been stronger, as you’ll see today.
That said, the industry is changing. Some marijuana companies will fail, and the industry as a whole will experience major turbulence. So, blindly throwing money at the trend is no longer likely to produce the same returns as in past years.
Today, let’s look at new evidence of marijuana’s momentum, then discuss how to navigate this market in a way that better protects your money.
***We’ve seen three new “momentum” tailwinds in just the last few days
First, Rep. Jake Wheatley (D) and 25 cosponsors filed a new bill this past Monday to legalize marijuana in Pennsylvania. It would allow adults 21 and older to purchase cannabis from licensed retailers. It would even allow individuals to cultivate their own cannabis, growing up to six plants for personal use.
Speaking on the matter, Sen. Sharif Street (D) said it’s “time for us to join the new age and enter the cannabis economy.”
What’s interesting about this is how much of a reversal it is in such a short period. In a radio show back in August, Pennsylvania’s Governor Tom Wolf said (regarding legalizing recreational marijuana):
There are, what, six states that have legalized recreational marijuana in the United States. I don’t think the citizens of Pennsylvania are ready for it, and so the answer I would say is no.
However, a mere four months later, he posted this tweet:
Could part of the change of heart be due to tax revenues? After all, Pennsylvania’s chief Auditor General Eugene DePasquale called for legalizing recreational marijuana back in 2017, pointing toward its tax benefits:
Other states are already taking advantage of the opportunity for massive job creation and savings from reduced arrests and criminal prosecutions. In addition, it would generate hundreds of millions of dollars each year that could help tackle Pennsylvania’s budget problems.
***Meanwhile, Pennsylvania isn’t the only state moving toward legalized marijuana this week
Two days ago, Iowa State Sen. Joe Bolkcom (D) announced that he plans to introduce a bill legalizing recreational marijuana. Under his proposal, cannabis would be regulated like alcohol.
From Bolkcom:
There is an enormous amount of economic activity and job creation potential by regulating marijuana like we do alcohol. And we can sit by and watch those new businesses and new jobs go to Rock Island and Moline, Illinois, or to Rochester, Minnesota, and have Iowans take their hard-earned money and go to those states.
One local Iowan news station summed it simply:
(Bolkcom) says Iowa is missing out from the tax revenue that the state could generate if lawmakers legalized it here.
If you’re a regular Digest reader, you know that this is nearly verbatim what Matt McCall told his subscribers would happen. From Matt’s 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.)
***Finally, legalized marijuana is about to be spotlighted in the upcoming Presidential race
Sen. Cory Booker, a New Jersey Democrat, announced last Friday that he will be running for President. It turns out, he’s making marijuana legalization a part of his campaign platform. From The Hill:
Booker discussed criminal justice reform and the need for “changing our drug laws,” including “ending [the] prohibition against marijuana” on the radio-syndicated “Tom Joyner Morning Show” on Friday.
Last year, Booker introduced the Marijuana Justice Act, which would eliminate marijuana’s status as a Schedule 1 drug under the Controlled Substances Act.
The move would also require federal courts to expunge the records of Americans who have prior marijuana convictions related to use or possession.
Now, the reality is Booker will likely take a different approach to legalized marijuana — instead of focusing on its medical benefits and possible tax revenues, he’s going to reference the need for reform based on a social justice perspective. From the same article above:
“We do not have equal justice under the law,” Booker said of the disproportionate rate at which people in the black community are incarcerated under the country’s drug laws. “I believe in redemption.”
Despite Booker’s different angle, the outcome is the same — the legalization of marijuana is about to become front and center as candidates seek nominations for President.
Coming full circle, is it too late to invest in marijuana?
Well, as of now, even with the massive growth we’ve seen, marijuana is fully legal (which includes recreational) in only 10 states, and medical marijuana is legal in only 33.
In other words, the upside potential is still enormous as the overwhelming majority of states haven’t begun reform. In sporting parlance, we’re still in the first quarter.
***Despite this, it’s important to be careful when investing in the legalized marijuana trend
The interest in marijuana investing is massive. Anyone looking at InvestorPlace.com will see marijuana stock articles dominating our most popular content. That’s because more and more people are looking for ways to take advantage — and that does create danger.
For example, some marijuana companies are trading for nosebleed valuations — like Cronos Group, trading at a whopping 257 times revenue (for context, Apple trades at 3 times revenues). This means investors need to be more cautious than ever. From our January 7th Digest:
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.
Matt goes on to point toward the need to invest in marijuana using a basket approach. What this means is that even after selecting only those marijuana companies that appear fundamentally superior, an investor needs to spread her money over a handful of companies — not just one or two. This diversification provides an added layer of safety.
If you’re comfortable with your ability to identify the right marijuana investments, fantastic — we’re rooting for you. If you’re less confident, yet want to participate in the trend, you can consider turning toward Matt.
At present, he has recommended nine stocks in his Marijuana Boom portfolio. Seven out of the nine are showing gains, with the average gain being more than 30% (at the time of this writing). Please note that this 30% average gain includes the returns of Matt’s two positions that are currently under water. If you’d like Matt’s help, click here.
Wrapping up, despite the gains that have come so far, marijuana returns are just getting started for investors who navigate the market wisely. But as the market matures, there will be money-losing impostors and scary volatility as well. You haven’t missed the boat — but you do need far more caution at this point.
Have a good evening,
Jeff Remsburg
