What the Marijuana Bears are Missing

Over the past two years, as more and more governments have decriminalized marijuana – and as legal marijuana stocks have climbed higher and higher – a cottage industry of naysayers has bloomed like mushrooms after a good rain.

For a variety of reasons, these folks have loudly and forcefully warned against investing in legal marijuana businesses.

These folks – and anyone who has listened to them – have missed out on an enormous financial opportunity. If we track “lost opportunity cost,” then we can say these people have missed out on literally hundreds of millions of dollars in profits and capital gains.

I’m writing to urge you: Don’t be in this same camp five years from now.

I’m writing to show you how the legal marijuana naysayers are naïve and wrong.

Most are ignorant of market history, massive long-term business trends, and the nature of the opportunities they create. While their advice may come from a good place, it’s misguided. I’m sending you this expanded essay today to explain why… and the enormous opportunity you have in front of you.

This essay could easily be worth over one million dollars to you over the long term.

Here’s what I mean…

The Nature of Massive Business Trends and the Long-Term Opportunities They Create

The creation of the Internet is easily one of the top 20 innovations in human history. It fundamentally altered the way we interact and do business.

Of course, a massive, world-altering business trend like the rise of the Internet creates massive opportunities for entrepreneurs and investors.

Of all the Internet-related businesses you could have invested in during the early 1990s, you’d be hard pressed to find three better ones than Cisco, Intel, and Microsoft. These three businesses played dominant roles in the buildout of the worldwide web and the devices people used to access it.

Cisco produced and sold the “plumbing” of the Internet. Microsoft produced and sold the software used for accessing the Internet, and Intel produced and sold the semiconductors the system ran on.

Here are the returns for each stock from January, 1, 1990 to December 31, 1999:

  • A $10,000 investment in Intel (INTC) would have turned into more than $461,000… a 4,600%+ gain!
  • A $10,000 investment in Microsoft (MSFT) would have grown into $935,555… profiting more than 9,350%!
  • And a $10,000 investment in Cisco (CSCO) when it went public in February 1990 would have turned into $6.9 million by the end of the century. That’s life-changing profits of 69,000%+!

As you can see, these businesses produced extraordinary returns for their shareholders during the Internet’s formative years. If you want better returns on every $1 you put at risk, you’ll probably have to play the lottery.

***However, the road to 5,000%+ gains was very bumpy. These super-performing stocks went through huge short-term ups and downs during their extraordinary runs.

For example, Cisco went public on February 16, 1990 at a split-adjusted price of $0.06 per share. The market cap that day was a modest $224 million. Revenue for the year surged 150% to $69 million from $27 million a year earlier. If you remove the name of the company and the year, those numbers are eerily similar to a handful of marijuana IPOs here in 2018.

By 1991, Cisco’s market cap hit $1 billion for the first time as revenue increased to $183 million. Again, the numbers are very similar to some marijuana stocks today.

Even so, early investors in CSCO did not turn into multi-millionaires overnight. In 1994, the stock fell over 50% in a few short months. It took more than a year for it to rebound. Investors who did not have the patience or the confidence in their research bailed out on the pullback under $1, missing out on a possible fortune.

The selling was triggered by an overall market plunge as the NASDAQ fell 14% from its March high. The selling in Cisco specifically was exacerbated when a spokeswoman warned that the next quarter’s earnings “were not in the bag.”

Think about that. A comment by one person, who is likely not even with the company anymore – and a comment that was focused on one three-month timeframe at that – likely sent most investors for the exits way too early.

CSCO Chart

Then there is Intel, which actually became a publicly traded stock back in October 1971. The company raised $8.23 million at a valuation of $58 million, a true microcap. Today Intel is worth $208 billion, more than 3,500 times its initial valuation.

Investors who had the fortitude to take the ride with Intel stock are extremely wealthy today. But as we know, it was not always a smooth ride. There were several sizable pullbacks in Intel years before the Internet Bubble in 2000. On a long-term chart they are barely noticeable (see below), but if you were an investor at the time they felt a lot worse than a mere blip.

After topping out in July 1995, INTC pulled back 40% the following few months. It took a year to recover the losses, and by July 1997, the stock rallied another 270% from the December 1995 low.

I would bet that the majority of retail investors were unable to stomach the pullback and dumped INTC when it was in the single digits.

INTC Chart

One final example is Microsoft. In 1990, the stock pulled back 38% from a high before rallying. The next year, MSFT fell 21% before rallying to a new high. Then there was a 28% pullback in 1992 before more new highs. And in 1993, there was a repeat performance as the stock again fell 28% before being 60% higher a year later.

The lesson is that in the early 1990s it was not easy for investors to hold through the pullbacks. A 20% pullback is considered a bear market in the investment world. Investors in Microsoft, Intel, and Cisco had to endure their fair share of bear markets, but if they did stay, they were on their way to becoming multi-millionaires.

MSFT Chart

A Cycle of Volatility

To experienced growth stock investors, the volatility and short-term corrections these stocks endured came as no surprise. It was expected. The early days of a massive new business trend are always marked by volatility… by frequent short-term sentiment extremes, both to the upside and the downside.

This is due to two facts of life…

Fact one: Industries or technologies with huge potential (like the Internet, radio, legal marijuana, smartphones, etc.) allow entrepreneurs, bankers, and brokers to make extraordinary claims and generate massive hype when marketing them.

Fact two: Most people are short-term thinkers. They can’t see past their nose when it comes to most things… including business trends and investment returns.

Because of fact one, people make big claims about an industry that usually sound something like this: “It’s going to transform our economy! You stand to make a fortune as a shareholder!”

Of course, investors get very excited by those claims and take positions.

And because of fact two, those same investors bail out of their holdings when they realize the industry isn’t going to fulfill its extraordinary potential in just a few weeks.

There were plenty of naysayers about the Internet. Their statements may seem laughable now, but they were enough to shake investors out of stocks at the time.

In 1994, Time said the Internet “was not designed for doing commerce, and it does not gracefully accommodate new arrivals.”

The next year, a headline on a Newsweek article read: The Internet? BAH!

No matter how impactful a new business or technology is, it takes years and years to truly change the world and create enormous wealth. But most investors don’t want to hear it… so they sell.

During the life of a massive new business or technological trend, this volatile cycle of rushed, enthusiastic buying – followed by frustrated, emotional selling – repeats itself over and over.

When you study the history of massive, world-altering business trends and the long-term wealth-building opportunities they create, you’ll learn that any time a major new industry is in its early stages, temporary bouts of extreme enthusiasm followed by sharp corrections (aka “high volatility”) are the norm, not the exception.

The volatile early days of Internet-related stocks were no surprise to any student of innovation and huge business trends.

The same cycle played out in the early days of the automobile… the early days of air travel… the early days of radio… and the early days of Bitcoin.

This brings us to the modern day legal marijuana business…

Marijuana Bears Are Looking in the Wrong Places

Over the past few years, many marijuana stocks have skyrocketed 100%… 200%… even 500%. Interest in the sector is at one of those traditional short-term highs.

In addition to many bullish folks in the marketplace, there are hundreds of naysayers out there filling editorial pages, Facebook, and Twitter with warnings that legal marijuana stocks are in a bubble… that the bull market is toast… that you should avoid these stocks like the plague.

These marijuana bears hardly spend a minute talking about the single most critical aspect of it all…

The incredible long-term fundamentals behind the legal marijuana business.

By now, you’ve surely heard the big picture case for investing in marijuana. In 1937, the federal government made the sale and consumption of marijuana essentially illegal. But in recent years, “weed” is now being decriminalized across the U.S. and Canada.

Businesses and consumers are responding…

Two years ago, sales of legal marijuana in America generated $6.7 billion in sales.

Last year, sales of legal marijuana grew by 37% to reach $9.2 billion.

When you consider that sales of coffee in America last year were $48 billion and that sales of alcohol were nearly $72 billion, three critical things jump to my investment mind…

One, legal marijuana is a large industry. Two, legal marijuana is a rapidly expanding industry. And three, it has room to grow much, much larger.

In fact, the legal marijuana business is set to grow so much over the next 10 years, I believe it will turn out to be one of the three biggest investment opportunities of your entire life, no matter when you were born. The opportunity in legal weed is much like the opportunity Internet stocks offered in 1994 … or that Bitcoin offered in 2015.

You’ve probably heard the comparison between the weed industry and the alcohol industry of the 1920s. Prohibition suppressed a great deal of drinking in the United States. When the law was repealed, pent up demand was released, sales skyrocketed, and booze sellers grew rich.

The estimates of where the marijuana industry will be in the coming years vary dramatically because there are a lot of unknowns. Which states will legalize medical marijuana? Will the states that already allow medical use legalize it recreationally? How will it be accepted, and will it overtake cigarettes and alcohol?

In 2017, North American legal marijuana sales came in around $10 billion – a 33% increase over 2016. With more states and now Canada legalizing recreational marijuana, sales are expected to grow by another nearly 150% by 2021. Medical marijuana sales will continue to increase at an annual compound rate of 21% up until 2022. Recreational sales will climb to $24.1 billion by 2025.

Let’s put the numbers into perspective. McDonald’s had sales of $8 billion in the U.S. in 2017. Based on the current numbers, it appears there will be more sales of legal marijuana than of Big Macs and chicken nuggets. That shows the scale of where the industry has gotten to and how big it can get when the federal government finally sees the light and legalizes marijuana from coast to coast.

I believe marijuana could grab a lot of market share from cigarettes and alcohol. There is nobody debating the negative effects of smoking cigarettes, and the U.S. has a major issue with binge drinking among the younger generation. Both vices are on the downslope, which is creating the perfect opportunity for marijuana to steal significant market share.

If the marijuana industry can reach the $75 billion level that research firm Cowen has predicted by 2030, it will be just below the current sales of cigarettes ($77 billion) and encroaching on the $110 billion in beer sales.

What most investors forget is that the marijuana business is not just about how much revenue is generated selling the plant. There are ancillary businesses, the “picks and shovels” as I call them. Deloitte believes that when the entire marijuana business is grouped together, the upside potential is for annual sales of $22.6 billion. Nearly three times the amount spent on wine!

These are incredible numbers. But don’t think the demand outlook for legal marijuana is limited to just North America. It’s much, much bigger than that.

As I mentioned, sales of legal marijuana in North America were about $10 billion in 2017. Outside of North America, legal marijuana sales were a paltry $52 million, less than 1% of North American sales.

Given this outlook, the roughly $10 billion global market for marijuana could grow to $57 billion by 2027, according to Arcview Market Research.

There are even more aggressive forecasts out there. Ameri Research sees global marijuana sales hitting $63.5 billion by 2024. The basis of the prediction is that more countries will legalize marijuana at the recreational level.

*** Again… if you spend time studying the history of massive, world-altering business trends and the long-term wealth-building opportunities they create, you’ll learn that any time a major new industry is in its early stages, high volatility is the norm, not the exception.

Temporary bouts of extreme enthusiasm followed by sharp corrections are inevitable. This was the case with the rise of personal computers in the 1980s. It was the case with Internet-related businesses in the 1990s. Legal marijuana is no different.

It’s just how the world works.

This is what most of the marijuana bears fail to mention in their critiques of the sector. They see the current excess of short-term optimism and then make blanket statements about how the whole sector is a terrible investment that should be avoided like the plague forever. They make no distinction between short-term “froth” in the market and the incredible long-term business fundamentals.

Anyone who says the bull market in legal marijuana is over just because the market is “short-term overheated” is revealing a deep ignorance of business trends and investment history. They need to go back to investment school (figuratively or literally), if they ever went there at all.

***I encourage you to view the legal marijuana market like a seasoned growth investor views it. Make the intelligent distinction between the very short-term picture and the long-term picture… and focus on the long-term picture.

To me, the long-term picture – and the absolute no brainer investment case – is utterly simple. We don’t live in the 1950s anymore. We’re in the early stages of a tidal shift in societal norms. The majority of voters don’t see marijuana as a vile, dangerous corrupter of youth and society. Most people are coming around to thinking of marijuana like they thought of alcohol a generation ago. This in turn is creating a tidal shift in government law around the world… and unleashing a giant new sector that will take decades to develop.

***Yes, Canada did just legalize recreational marijuana, marking a historic day in the weed industry. Remember, Canada is the first and only industrialized nation to legalize recreational marijuana. It boasts the 10th-largest economy in the world, accounting for 2.7% of global economic output.

How can there be a bubble when recreational marijuana remains illegal in 97.3% of the world’s economy?

That would be akin to calling the Internet a bubble in the early 1990s because a few people were able to send emails.

The world’s best consumer product companies certainly don’t view legal marijuana like the bears view it…

  • In the past year, the giant alcohol company Constellation Brands (STZ), invested more than $4 billion into the marijuana sector. The investment was made into one company, Canopy Growth Corp. (CGC), which is now the largest marijuana company in the world.
  • Another major beer company, $13 billion Molson Coors Brewing (TAP), signed a partnership with marijuana company HEXO (HYYDF) in August.
  • The alcohol companies led the movement and the tobacco companies are next to make the leap into marijuana. U.K.-based Imperial Brands (IMBBY), a $32 billion tobacco company known for its Kool and Winston brands, has invested in a private marijuana company
  • Altria (MO), the $116 billion tobacco giant behind the Marlboro brand, has been in talks with several Canadian marijuana companies.
  • And how about $196 billion global consumer giant Coca-Cola (KO)? The company has been in talks with marijuana companies in the past few months. Management even came out with a statement that confirmed they are looking into using marijuana-derived substances (chiefly CBD oil) as ingredients for wellness beverages.

Big Money is Coming

There are only a handful of marijuana stocks that are available to large, institutional investors like mutual funds and hedge funds.

These big money managers ultimately determine where stock prices go, but they can only invest in highly liquid, sizable companies. With just a few options available, the institutions have not been able to participate in the first wave of the marijuana trend.

With more companies moving to major stock exchanges every week, it opens up the opportunity for large amounts of money to flow into marijuana stocks.

A bubble cannot exist without the big money making its way into a sector.

***As I’ve detailed, the legal marijuana business has enormous room to grow over the next decade… and it represents one of the biggest opportunities of your life.

Will there be bumps on this road? Sure.

Will the legal marijuana sector get overheated from time to time and experience sharp corrections? Sure.

If you learn the history of massive, world-altering trends – and the long-term wealth-building opportunities they create – you know this stuff will happen. And you’ll know short-term sell-offs will be amazing times to buy ownership stakes in the world’s best legal marijuana businesses.

My advice to current or would-be legal marijuana investors is the same advice early Internet investors should have received in 1994. It’s the same advice early Bitcoin owners should have received in 2015. It’s the same advice early personal computer industry investors should have received in 1983:

Focus on the long-term fundamentals… focus on the enormous long-term potential of this new, disruptive, world-altering business. And stay long.

Note: Mark your calendar for Tuesday, December 4th. I don’t know what you have planned for this day right now … But whatever you’re doing, I suggest you rearrange your schedule, because you’ve got the chance to make a heck of a lot of money, beginning on this exact day.

All thanks to the red-hot cannabis industry …

Even if you don’t know a thing about the marijuana markets …

Even if you’ve never bought a stock before …

If you have a just small amount of cash, you could multiply your money many times over beginning just a few weeks from today. What’s going on exactly and how can you cash in?

Click here for my exclusive presentation that tells you the full story.


Article printed from InvestorPlace Media, https://investorplace.com/moneywire/2018/10/what-the-marijuana-bears-are-missing/.

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