The Investor’s Case For Cannabis

It’s only been a half-decade since 2014, but it really seems like a lifetime ago. I still had a kid in high school, I wasn’t quite yet 50, and marijuana was still illegal… for the most part.

Marijuana sales for medical use had been legal in several states since the mid-1990s. However, 2014 was the first year that Colorado allowed legal marijuana sales for recreational use. Which started a huge conversation across the nation.

Should it be legal?

At what age?

Is it a gateway drug?

Legalization of Marijuana

A few years ago I wrote about marijuana sales in 2014 from the standpoint of economics. The State of Colorado had legalized the sale, possession, and consumption of the plant. That opened the door to a new industry, from agriculture to retail sales, and creating a new tax revenue stream as well. There would be issues, for sure. Including policing access, how to deal with people who are high in public, and navigating the banking system because the drug remains illegal at the federal level.

One of the conversations on the topic happened at dinner during our Irrational Economic Summit in Miami that year. I was sitting with Harry and his lovely, bright wife, as well as two long-time readers and friends, Kathy and Charlie. Harry’s wife insisted that legalization was overdue, and concerns, like mine, about children’s access were overblown.

So far, she’s been proven right, which makes me wrong… and I couldn’t be happier.

Old People Like Marijuana

According to a recent study published in the Journal of American Medical Association Pediatrics, legal marijuana for medical use doesn’t appear to sway teen use, while legal recreational pot is actually associated with an 8% decline in teen use. The study suggests that perhaps teens can’t access the drug as readily from legal sellers as they could on the black market, but I’ve got a simpler notion: Maybe they just don’t want to be like their parents.

Selling drugs to old people… that’s where the money is.

The Journal of Psychoactive Drugs surveyed 1,000 customers in two retail pot stores in Colorado, asking why they buy the drug. 65% reported buying cannabis as a method of pain relief, while 74% said they bought it as a sleep aid.

In every state that had legal medical marijuana and then legalized the drug for recreational use, the sale of medical marijuana dropped.

People are self-medicating with pot. With the Boomers, a generation comfortable with the compound, retiring at record rates and reaching ages where aches and pains are common, we can expect the trend to accelerate. Pot sales should grow exponentially, giving investors an opportunity to be part of a huge industry from what is still a very early stage.

The Question Is, “How?”

How do you know which of the many different companies to buy?

As the saying goes, there’s more than one way to skin a cat, and more than one way to buy a stock.

In my service, Fortune Hunter, I own a number of cannabis companies. I’m looking for firms that have a proven record of providing a service or product, typically already profitable, and with the ability to grow rapidly with the industry. If possible, I’d like such companies to have smaller valuations so that quick growth will drive the stock price higher at a rapid pace.

After looking for companies that check those boxes, I wait until they’ve had a good, or even great, run, and then rolled over, providing a better entry point.

Every measure I listed except the last one is fundamental. I want to know what’s going on with the company, and only after that do I look at how the stock has moved.

Cannabis Paydays vs. Fortune Hunter

Compare that with how my friend Adam O’Dell approaches the market in his new Cannabis Paydays service. Instead of using an inside out approach like I do, he focuses almost exclusively on price movement.

His point is that the company can be fabulous, but if the stock isn’t moving then you’re not earning profits. He overlays his successful investment approach on the cannabis market so that he can potentially identify the best chances for profits in an industry set for explosive growth.

Both approaches – fundamental and technical – work, which is why both have existed on Wall Street for nearly a century.

The one thing that doesn’t work is sitting on the sidelines. From there, all investors can do is watch the industry grow without them. If they live in the right state, maybe they can purchase a little legal cannabis to ease the pain.