WEED (marijuana) Stock/Companies
Living in Colorado currently, state saw $3.5M in tax revenue (medical and recreational combined (2 from recreational)) in January 2014. On track for about $40M in tax revenue on the year. I'll give it 10 years until the rest of the country catches on.
What are your thoughts on Weed Accessory/Equipment/ Distribution companies?
I'd be hesitant until federal law allows it.
I'm thinking if these companies make it big, they'll be bought by big tobacco. they already have the regulatory staff in place, the distribution networks, the operations, etc.
I agree with the tobacco partnering/buyout, but I don't think there's a huge need for worry about legalization. It's not as controversial as gay marriage and other things that step on the religious nutheads, and it's pretty apparent that it will be happening. I'd say complete legalization in 20 years maximum, most likely 10-15.
I agree that it's inevitable. but there's a difference between inevitable and imminent. a decade away is not something I'm willing to bet money on. after it's legal, let the games begin
There's a newer PE firm in Seattle, Privateer Capital or Holdings, that's doing cannabis investing. I read a couple of article about them a little while ago and their strategy is interesting. Finance guys and I think even an ex-DEA lawyer, so not potheads, who are investing in some of the ancillary pot businesses that are definitely legal and that don't even lurk in the grey areas of the law, such as a website that gives details of doctors and dispensaries, a security company that specializes in protecting warehouses, grow rooms, weed shops, cash, etc. and things like that. I also remember them getting involved more directly in actually handling marijuana in Canada because the laws are more lax and concrete there, but I really don't know anything about the law up there with regard to weed.
I thought it was a really interesting strategy because they're staying completely on the rights side of the law for now but they're positioning themselves for the long term as pot becomes legal in more states and eventually everywhere, and state and federal law normalizes, to be the number one cannabis industry investor.
I doubt it's possible due to state and federal banking laws (retail/commercial) but I think establishing a banking system for CO and WA states could make someone rich. I keep reading articles about how the retail shops, distributors, and growers are making real money but they basically have to keep it and transact everything in cash. Like I said, I don't know how you'd do it but about 10-15 years ago when PayPal was still newer there were a few very profitable online payment systems that were 100% legit that transacted in online gambling, porn and some of the seedier elements of online payments that made tons of money. I can't remember the name of one but it went public in London for hundreds of millions and it basically allowed for a safe online payment to gamble and watch naked people fornicate.
Cryptologic maybe? Met one of the founders, speculation that he made ~$500 million when he was 26...
It may very well have been. I don't know why I can't remember specifically, other than it was 10-12 years ago, but Canaccord took them out on the LSE or AIM, it may have been a secondary in London after they were already public on TSX. There was a ton of money to be made in payment processing back then. I think if someone could figure out a way around state to federal banking regs the same could be done for marijuana, both medical mj in the numerous states where it's currently legal and recreational in CO and WA, and more to come.
The pot thing is really interesting but you just have to be very careful not to cross the line and get your ass thrown in jail.
Here's a former Microsoft corparate strategy guy with his plans to make a national weed brand. There was a pretty interesting interview that showed some of his operation on the local news, but I can't find right now.
http://www.reuters.com/article/2013/05/30/usa-marijuana-idUSL2N0EB0YA20…
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Very few LP funds will touch this stuff, but, I've heard a lot of murmuring that GPs/MDs would love to get their own $ involved...
Honestly I'm looking at it. I feel like it's a gold rush sort of situation, but I'd like to find the right groups who are providing services or goods to the gold miners rather than finance the miners themselves. BofA and Levi's were basically built on the '49er gold rush. Not too many people can name individual miners, but 150+ years later and most people have worn Levi's and done business of some sort with BofA.
Not to nitpick your point (since it makes sense) but I think you mean WF, not BofA. BofA didn't exist until well after the gold rush.
I've done my research into several mj-related startup / solo venture ideas that I've had in mind for quite awhile now. It's still a very tricky business at this stage of the big picture regulation/legalization process, but I agree with others that legal weed & related business opportunities will see considerable growth over the next decade. The main problem lies in finding VCs-Angel types who will put money into something that's still in somewhat of a gray area legally, or who aren't anti-potheads themselves. After running the numbers my best project/idea requires something to the tune of $300k+ to get started as an legitimate weed-related business. Compliance/financing/insurance is an absolute pain in the ass when it comes to getting started in MJ, not to mention the difficulty of finding reliable employees + partners who also know their shit about weed. The small number of people currently getting rich in "legal marijuana" aren't the ones going completely by the book, as disappointing as that may sound to some of you guys. This is due in part to relatively lax oversight and existing regulatory loopholes in parts of Colorado/Washington + medical states (more so a select few medical mj states). I still see a bright future for the industry as a whole but the US government will surely take 10-15 more years at least to get this one figured out.
Honestly, full legalization is too far away for it to make you money now. You are better off investing elsewhere for the next few years.
Like most are saying, I think there is a future, but right now directly investing in companies that are just "finding there ways" is not going to serve one well. As for pink sheet equities, all they do is move with the news headlines. Personally, I'd do tons of research over the next few years, know the market like nobody else, stockpile some money, then go into something. If the average guy can throw some money into a start up, all the power to you.
I think right now there is a bit of a thrill with the new idea, so don't pull a "late 90s tech stock investment." Give it time. You can get much better returns elsewhere...like idk shorting the dow when it trades high again...
BUMP BUMP BUMP
Sessions ruined the weed RUN UP! My portfolio was looking green and green and then he starts talking crazy talk. Good Lord man don't mess with my money!
What are you invested in?
TWMJF - Canopy Growth KSHB - Kush Bottles TRTC - Terra Tech Corp ERBB- American Green SKLN- Skyline Thinking of adding Aurora into the mix!
That guy is pure incompetence of the government. Legalize/privatize and tax.
PURE incompetence, its unbelievable
It could help lower healthcare costs, reduce the opioid crisis, the tax revenue could be used for the infrastructure plan (and wall) and reduces violent crime.
Sessions just announced he will crack down on legal weed so now is not the best time to be investing.
I think there is too much money involved and it has already stretched to too many states. I don't see this toothpaste going back in the tube! Plus Canada isn't slowing down!
Investing in Marijuana Growing (Originally Posted: 06/04/2014)
So I've been approached with an opportunity to purchase a minority stake in a marijuana growing business in a state that has recently legalized marijuana. Prospectus is in the works at which point at least some questions will be answered but wanted to see what WSO's thoughts were on space generally.
What I know: - Founder is looking for capital to meet initial capital requirements to obtain a license - Only a reasonably small number of licenses will be issued for the state, and few for the individual county. Only marijuana grown in the state will be available for purchase. - Founder already owns warehouse property to hold numerous large growing pods, and has partnered with a company that has already established large-scale growing businesses in Colorado and Washington - This is only a marijuana growing business (no dispensary). Will be able to provide marijuana to all dispensaries in the state.
Will update once I see a prospectus. Anyone have any experience or looked at an investment like this before?
i'd make sure to test the product before you do anything ;)
I would ask to interview the individual that is going to head up the growing operation. It doesn't matter how much money they have. If they have a bunch of idiots doing the actual work, it will never work.
I would make sure that I am legally protected before investing. Many of these legal grow operations get busted by the DEA because they ship goods out of the state.
A few questions below. There are many more. I recommend grabbing a prospectus for a food company that manufactures food and relies on third party distributors to take the product to market. The business overview and key risks section in that sort of document should give you an idea of what is important in getting a product to market and in front of customers.
Distribution will be critical. You can grow the best pot in the world, but if you can’t get it front of customers, you won’t sell any.
My questions relate mainly to distribution. The supply/growing ops side likely has a whole host of questions.
Q. Do they have a license? No license, no money other than some highly speculative funding to help them get a license. Check out who the law firm is that is helping them get the license.
Q. What is their distribution and logistics network? Once they grow and prepare it for sale, how does it get to the customers? Are they dealing with distributors (how good are those distributors?) or direct with retail outlets? Critical to know how much access to market they have through distributors and the logistics for getting the product to customers. Are they using distributors who have access to the right points of sale (eg distributors who already , say, distribute tobacco products to smoke shops)? How much bargaining power do their distributors have with retail outlets eg can those distributors get the product placed in the right locations in the store – most prominent shelf space etc? How good are the distributors at working with retail outlets to make sure the in-store marketing placement and marketing is right?
Q. What's their competition and branding strategy? Will they seek to develop a brand for all their pot, or are they doing private label pot which distributors or retail outlets will brand with their own label? How will they market their product so that customers buy their pot and not someone else's? The distribution question above is critical on this - ie do they have access to a distribution network which put their products in the right place in front of the right customers and, if so, do they have exclusivity with those distributors so that they are often the ONLY product in the right place in front of the right customers?
Q. What's the impact of pricing fluctuations on their margins? How sustainable are their margins? Do they have the ability to pass through higher costs (eg when fertiliser or power costs rise) to customers, or are they price takers in the market due to competition? Are other pot growers in the same area and exposed to the same costs issues?
Thanks for the post. Very helpful.
To answer a few of your questions:
They do not yet have a license, but if they don't get one I get 100% of my money back
I feel good about the distribution generally given some of the management team's prior experience, but definitely recognize its importance and will do a substantial amount of diligence there. I think it’s a little less complicated considering the product will be sold solely through dispensaries, which are also currently in a “pre-license” stage. This of course adds to the uncertainty though, as there are no established relationships or even general practices.
Don’t know about margin sensitivity. Have asked to see a model. But I am a little wary because although the number of licenses is pretty limited, I don’t believe there is a limit on the number of plants a licensed grower can grow. Seems to me someone with a gigantic warehouse could start to price people out.
Thanks for the prospectus suggestions. Will do some reading.
Also bear in mind that, if these guys have been growing pot a long time, their historic distribution network likely won't work in the new market. They need proper distributors taking their stuff to be sold in legitimate commercial outlets, not guys selling to friends from their couch.
So distribution will be more critical than growing ops. If they haven't thought about distribution at all, I wouldn't go near them as they clearly don't understand what they are getting into. If they do have a distribution plan, then that would be my first area of due diligence and that plan should be the centre-piece of the equity selling story.
And here are some recent prospectuses that should be useful in covering the business model of people who make consumables for the retail market:
Pinnacle Foods (Dec 2012) Whitewave Foods (Aug 2012) Annie's (Dec 2011)
(and if the guy from our consumer retail team I just got this list of reads this site and this post, my cover in blown)
Is their office building green?
I'd also ask what their banking strategy is and how they're going to return money to you, and I mean that on a very elementary level. As far as I know banks aren't accepting pot deposit for fear of the federal government. If it all works out are they just going to give you sacks of cash and then you're going to deposit what may be illegal money into your bank?
I actually see solving the banking question for the industry as a great business proposition. I compare it to the gold rush of the 49'ER days: you have no idea who an individual miner was but BofA is still around (in one form or another) and some of the providers of good like Levi's jeans still exist.
There are a few VC and PE funds that have popped up to invest in MJ (google it).
The largest angel investor group in CO (Rockies Venture Club) just hosted a conference.
http://cannabiscapitalsummit.org
Having participated in a recent MMJ offering, I can definitely help you out. Shoot me a PM.
If no licence = 100% of your money back, they shouldn't need your money before they get the licence. So draw down on your funding should have "you get your licence first" condition precedent. If it's anything other than that and they have control over your funds before they have the licence, then that sounds dodgy. Could be innocent naivete on their part (in which case you should explain licence is CP to your funds), could be them looking for you to demonstrate good will and funds (which you could do by putting it into an escrow account where you are joint signatories, both signatures required) or could be dodginess.
[Note: I did private equity in China for 9 years, so I don't trust anyone]
Nah, it's just that the license application requires that you have a significant amount of "committed capital" to prove you're a worthwhile cultivator. Funds would likely be kept in escrow.
This is Illinois you are speaking of correct?
As I'm sure you are aware, marijuana is still illegal at the federal level. The executive branch/DOJ/AG's office has (more or less unofficially) decided not to prosecute these cases. However, this could change rapidly, via forthcoming elections, for example. I would consult a (criminal) attorney on the matter before diving in too deep. You may also want to incorporate these considerations into your deal structure/purchase agreement.
I actually made some good coin with Canadian marijuana stocks over the past 5-6 months.
another thing to consider is how they manage cash flow. many banks are having a tough time with this because FDIC insured banks can't take drug money (federal law), but MJ growers still need a place to have operating cash. a minor point when evaluating a business, sure, but I think it's still important
Invest in fertilizer.
Is there a solid single source for keeping current on this industry? I'd like to keep track of how this progress is going in other states and where my state is with legalization.
The fertilizer angle is a good play too. Vega BioFuels makes a USDA approved fertilizer made from leftover wood scraps that dramatically increases the yield per plant. The stock is some penny garbage but the product seems to be popular.
Fertilizer would be a low margin, largely commoditised product, no? I've never looked at the sector and would be happy for someone to school me if I'm wrong.
Marijuana Stocks (Originally Posted: 01/06/2014)
With marijuana becoming legal in some states and others passing medical marijuana, was wondering what stocks I can buy to benefit on this? I know some stocks have skyrocketed, but do you guys think there's still a lot of potential in marijuana stocks, if so which ones?
Fritolay (owned by PepsiCo, PEP). Because munchies.
Cannabis Sciences (CBIS)-right now you're not going to make money on improving economics of the company, but every time a vote passes you get a spike in price you can sell on.
Agree, buy fritolay or just start your alternative investment portfolio. Stockpile flamin hot cheetos, doritos, etc...
Righteous bucks
good discussion from november http://www.wallstreetoasis.com/forums/marijuana-valuation
weed has been a "hot sector" in penny stock land for some time now, don't go reinvesting your "profits"
Best stocks to invest in in the cannabis sector (Originally Posted: 07/11/2014)
Hi monkeys!
With all the legalization going on in the US regarding cannabis use it seems like an interesting sector to invest in right now. Most stocks are relatively cheap, as they have dropped double digits % since March this year.
Any recommendations regarding companies that would profit most from this in your opinion?
Interesting companies in my opinion:
What do you guys think??
I don't know how well PHOT will be doing in the near term at least. They're in the process of going through a class action lawsuit against the stock holders so it may be a bumpy road for them.
Pretty much all the MJ companies are all penny stocks right now which you have to take with even more caution than normal.
Since you're probably gonna lose whatever you invest, you might as well just write me a check now
kthx
I only invest in yield and growing cash flow. So these seem like a poor waste of funds IMNSHO
Marijuana Business (Originally Posted: 12/07/2012)
What do you think? This guy is serious about it and set to start the business. Where is it going to go?
http://www.youtube.com/embed/yyXnc-ZerYM
I hope he has enough money to lobby Congress to legalize weed.
I think that's just going to take some time. I was surprised when I found out about CO and WA, didn't even know it was on the ballot for those states... definitely wasn't expecting it so soon either.
"Where is it going to go?"
---Jail.
I don't mean to nitpick, but what does this guy think will happen to prices post-legalization?
I don't even do drugs, but I am curious to see what sort of awesome GMO stuff comes out once agriculture co.s are able to deploy R&D dollars on this.
The quickest way to get a brutal IRS audit would be to invest your money into something that is against federal law. If I were one of these investors I would probably steer clear of this for another decade or so.
^This. Considering marijuana growers/dispensaries cannot deduct any expenses except for COGS for tax purposes, unless they got a crap-ton of money reserved or a 200% markup, they're going to take it up the butt by the time tax time comes around. I've seen a number of them where I'm at close up because they can't pay the tax on their gross profit (which is no where close to their net profit).
Until it gets legalized I would steer clear of these companies as investments (or if the tax treatment gets fixed).
From what I've read, the tobacco companies are best aligned to dominate the weed market. Not much room for smaller firms to grow when tobacco companies can simply grow cannabis instead of tobacco and beat out everyone else on margins alone. HuffPo speculates weed could become so cheap (cost pennies to make) that joints could be handed out for free at places like restaurants. The sub-industries (for pieces, bongs, ect.) look like nicer bets.
In the meantime, markets at CO and WA are already saturated as feds stopped raiding there years ago, and the same goes for CA. Current CA resident and it's ridiculous how easy it is to get weed, esp. in nicer areas/suburbs. Though I wouldn't doubt there's money to be made in new areas such as cannabis bars (like hookah bars), cannabis deliveries (maybe alongside pizza deliveries), ect.
The biggest winners from all this are going to be fast-food places.
that would be genius, they'd make so much more money for sure
They could invest in rolling paper, cigarette manufacturing equipment, bongs and burritos/funnyuns
How long before weed starts getting traded on the commodities market? I believe that was an actual topic here a while ago.
I think eventually marijuana would fall into a vice fund.
The main question I have had since the bill passed for recreational use of pot in CO and WA is what will the laws look like across states? For example, if you get drug tested at work (in a state outside of CO and WA) and the results come back positive for marijuana, couldn't you just say you were in colorado or washington state, where it is legal?
I really think the recreational use needs to be an all or nothing thing as it is going to be too hard to regulate across states.
As someone said above, the best place to position yourself right now is to sell home growing kits that you can get manufactured for the cheap. Once it becomes legalized you won't be able to compete with the big guys in regards to growing bud, but a lot of the "home brew" type will need a constant source of growing materials. Get a strong, reliable brand going and start selling to Home Depot and other large retailers.
If marijuana is legalized... (Originally Posted: 07/26/2012)
So I was listening to the radio on the way to work this morning, and they were discussing the possible legalization of marijuana. This got me thinking...
If the drug were to become legal, how long until it is traded on the commodities market?
I'm not very well versed on the regulations and such, but would this be possible? Could it be a tradable commodity?
Note: This post does not imply that I support the legalization of marijuana
i would literally drop everything i was doing and become a hemp trader. fo' shizzle!
Physical delivery... 5,000 bushels... oh my goodness.
How is it different from any other ag product?
I could see the exchanges breaking it down to different grades, maybe (i.e. Icky Sticky North Slope Quiver Bud vs. Mexican Ditch Weed, etc...).
Paper traders would flock to the hemp market and make huge spreads until the market equalized.
What are you ashamed of? Be proud to be a pothead! Legalize marijuana, save billions, and free up space in prisons for actual violent offenders! Someone in my hometown just got a 5 year sentence for shooting his son! WTF?
Pro legalization != pothead
I support legalization of marijuana, but I keep going back to that pothead I talked to in high school now about 10 or 11 years ago. I was well known as the campus Republican, but when talking to this guy I made nice and talked about how, in principle, I was ok with legalizing pot. He told me that he didn't support legalization because he thought millions of people would have easier access to throwing their lives away like he was doing.
I have no idea what a nation of legalized pot looks like, but it does make me stop and think about the unintended consequences. :/
You're crazy if you think the nation would look differently with legal marijuana. This is coming from a veteran weed smoker. That guy you met in college had personal problems.
Because the unintended consequences of prohibition have been so pleasant?
Maybe there'd be pot futures and other pot derivatives that Columbian drug lords trade in America to hedge their price risk. Would be a pretty baller thing to get into haha
Pot doesn't come from Colombia, man. 80% of it is grown here in the US. You're thinking of coke :P
Shouldnt be legal, should just not be illegal like it was in Holland. People can smoke in privacy of homes but not in public places like malls or stadiums
Idk, I bet the market would be dominated by locally-grown, small producers who distribute the product through farmer's markets and the like. They usually won't be trading large quantities or futures.
The smokeable pot will be a shitty business to be in. Prices have already been cut in half (for the best stuff) and in some cases it's 1/4 of what it was 5 years ago. It will keep going down, too, if the trend keeps up.
Hemp, on the other hand, would be a great business to be in and will destroy many other industries.
I'm not sure where I heard this, probably from one of those Marijuana documentaries on CBS or something but I remember them saying it was a bad move for government. Something along the lines that if weed was legalized then the money the government would get from taxes and what not would be less than they get now from confiscations and tickets.
Note: This post DOES imply that I support the legalization of marijuana.
I think legalizing (or at least decriminalizing) marijuana is a no-brainer for some of the above-mentioned reasons.. As for it becoming an exchange-traded commodity, I doubt that would happen because it would only have a fraction of the volume of other commodities anyway. You can grow weed just about anywhere and don't need to order it from halfway around the world, and it's not like small shops would be hedging with forward contracts.
Investing in Cannabis - Most Promising Sector of the Decade (Originally Posted: 07/30/2013)
Note: See tl;dr summary below post.
As a white anglo-saxon protestant male with a degree in finance and an MBA, I’m about as far from the counterculture as they come. I’ve never touched a cigarette except to clean up someone else’s litter; my lifelong alcohol consumption is probably somewhere between 4-8 ounces; and the only narcotics I’ve ever enjoyed were post-surgical and came in a little orange bottle from a licensed physician.
And I firmly believe that the best investment sector of the coming decade is pot.
The Stats
Before we get into such a highly controversial discussion, here are some hard facts:
Read: A whole lot of states are going to be legalizing medical marijuana in the very near future. Nearly the whole country thinks it should be legal, but less than half the states have legislatively reflected the will of the people - a situation that to me seems to be as ideal and predictable of an investing opportunity that will ever come around. However, medical marijuana is not the same thing as full legalization. Let’s move into that subject with some more cold hard facts:
And most importantly:
Clearly, public opinion is also in favor of full legalization, and moving quickly further in that direction. That last stat is the most revealing – apparently 20% of the country is not comfortable saying that they are OK with legalization, but doesn’t want the laws making it legal to be enforced. In other words, logic tells them it doesn’t make sense and they don’t care if people use it, but it makes them feel better to keep the “illegal” stamp on it for now because of the drug’s continued stigma. These are the people who will move into the “legalize it” camp within the next few years.
It is extremely rare that any type of policy change has nearly three quarters of the public support - that particular threshold is the one the Founding Fathers chose in order to be absolutely sure that any amendments to the constitution were sensible, just, and rare. But before I insist that full federal legalization is imminent, let’s try to understand why these stats are what they are.
A Substance Analysis
There are two main factors I would like you to consider, the first of which is the fact that a government by the people cannot sustain a law with which the majority of its population is in disagreement. Prohibition analogies in this context are overdone, but it is true that the situations are strikingly similar - federal law prohibits the possession and ingestion of a substance that the majority of the population has both possessed and ingested. (Only about half admit to it, but considering the data comes from officials from the Department of Health and Human Services who go door to door to ask people to admit to breaking the law, I propose that the real number is much higher. The government estimates that people have historically under-reported usage of legal drugs like alcohol and tobacco by 30-50%, so I think it’s safe to say that at a minimum, 80% of the U.S. adult population has tried marijuana at least once.)(4)
Perhaps more importantly, my argument that full legalization is not only inevitable but also imminent is based on the fact thatindependently from the social stigma that people associate with marijuana use it is impossible for a logical individual equipped with all the facts to remain in opposition to legalization. I don’t say this to make a contentious statement, but to point out that if objective criteria are used to the exclusion of emotional or cultural baggage, there is only one policy solution.
I’m definitely going to need a little data to back up that bombshell, so let’s take some objective criteria. I think we can all agree on a loose framework: the purpose of banning a certain substance is to protect people from its harmful effects. (Whether it is appropriate for a government to restrict an individual’s actions for his or her own safety, or whether it is only appropriate for the government to restrict someone’s actions if those actions might harm another, is not a subject of this discussion.) Let’s examine, using the objective criteria of harmful physical effects and addictive qualities, the five most common ingested substances that modern society uses to produce an altered physical or mental state: caffeine, alcohol, nicotine, sweeteners (refined sugar/high fructose corn syrup), and cannabis.
Harmful Physical Effects
Caffeine - restlessness, anxiety, irritability, agitation, muscle tremor, insomnia, head- ache, diuresis, sensory disturbances (e.g. tinnitus), cardiovascular symptoms (e.g. tachycardia, arrhythmia), gastrointestinal complaints (e.g. nausea, vomiting, diarrhoea), increased risk for detrusor instability, and many other effects, though all of the effects that are more serious only result from excessive long-term intake.(5)
Alcohol - Neurological problems, including dementia, stroke and neuropathy; cardiovascular problems, including myocardial infarction, cardiomyopathy, atrial fibrillation and hypertension; psychiatric problems, including depression, anxiety, and suicide; cancer of the mouth, throat, esophagus, liver, colon, and breast; liver diseases, including alcoholic hepatitis, and cirrhosis, (which is among the 15 leading causes of all deaths in the United States).(6)
Nicotine - high blood pressure, increased pulse rate and cough, bad breath, tooth stains, oral cancer, destruction of respiratory tract cilia leading to chronic cough, increased heart rate and blood pressure, decline in insulin, lung cancer, premature aging, narrowing of blood vessels, weakened sense of smell, other damage to lungs, heart, kidneys, digestive system, liver, eyes and many other vital organs in the body.(7)
Refined sugar/high fructose corn syrup - Health risks are generally indirect, chronic, and long-term, making them hard to pinpoint, and making their harmful effect more difficult to appreciate. However, it should be noted that refined sugar is an artificially manufactured, highly addictive chemical with no nutritional value, and contributes to many of the leading causes of death in the U.S., including cancer and heart disease. One online source lists 143 health risks arising from refined sugar consumption, complete with peer-reviewed study references for each one.(8) Personally, I think sugar is the worst of any substance on this list.
Cannabis - The main health risk is from smoking, similar to nicotene. There are also clear health detriments to young people (which don’t occur in adults), harmful effects to children during pregnancy, and similar psychological risks as alcohol. Other than these factors (all of which can be avoided), health risks are inconclusive. The source I have associated with this point was the most negative I could find, but some online research will yield a lot of contradictory inferences which are generally inconclusive.(9) I don’t mean to undersell the risks - overall, there is no doubt that cannabis use has health risks. The point of this analysis, however, is to show that when compared to the other (legal) substances in common use, cannabis is probably the least harmful. That conclusion is subjective, but I think most people will agree that among the alternatives, cannabis is definitely not the worst.
Addictiveness Ranking(10),(11)
(Note: Various sources disagree about ranking because addictiveness is defined differently, but everything I could find online puts cannabis dead last.)
My point is this: when you objectively evaluate the characteristics of each of these substances without taking into account the emotional or cultural factors associated with them, marijuana is by no means the worst. It is the least addictive, and probably has the least harmful effect on health. Therefore, as the emotional and cultural factors continue to fade as evidenced by the surveys above, the objective conclusion that is left is that good and consistent policy requires equal treatment of each of these substances. Equal treatment, of course, will include regulation as well as legalization; marijuana will likely remain illegal in public places except for those that are specially designated or licensed (as is the case with cigarettes), and it will remain illegal to drive while high, just as it is illegal to drive while under the influence of alcohol. Use by minors will likewise be restricted.
Now, I hope, you are convinced that full legalization of marijuana is coming within the next decade, and that understanding why has made you a little more comfortable with the assertion that it is coming soon. In addition, I hope you are beginning to visualize a rapidly approaching world where marijuana use is legal. The stigma is fading as the sixties move further and further away with each passing year. Note also that support for legalization is increasing at an increasing rate. Here’s the graph from each yearly Pew Research survey; you can clearly see that the increased support across the past decade is definitely not linear.
The Challenge
But how do you turn a coming policy change into an investment opportunity?
Consider this first: by 2016, the state-legal market for marijuana (assuming no federal legalization occurs) will go from about nothing to $9 billion by some estimations.(1) When in the history of finance has industry growth of this velocity and magnitude been so predictable?
The problem, of course, is the stigma. I imagine most of you physically smirking right now as you contemplate the prospect of pitching a pot investment to your MDs. What is interesting to me is that everyone is still treating the stigma as irreversible. In the sixties, Honda took the edge off the motorcycles’ criminal Hells Angels stigma with their “You Meet the Nicest People on a Honda” campaign. (Interesting aside: Honda bike sales last year surpassed $13 billion.(12)) It’s not the sixties anymore - marijuana has lost some of its hippie image. Plus, I think we’ve made a few leaps in our understanding of advertising psychology since then.
Of course, at the moment the industry is likely dominated by proudly self-identifying hippies who typically have little business experience and who perpetuate marijuana’s negative image. This, of course, creates the perfect opportunity for a few private equity/venture capital MBAs and an ad agency to step in. Not only is the market about to explode - the competition is nil.
The Conclusion
In September 1933, just three months before Prohibition ended, Joseph Kennedy (JFK’s father) had the foresight to go to Britain to secure distribution rights from the British distillers. He secured a medicinal distribution license in anticipation of full legalization (sound familiar?), and by the time booze was legal again, he already had the business set up and was ready to capitalize on the opportunity.(13) Without that move, I wonder if America would have ever seen Camelot and its first and only “royal family”? And given that history, I wonder what will come of the parallel situation today?
Sadly, I doubt many of us have both the adventurous spirit and the required funding to repeat that move. If you’re not up for the high risk, high reward prospect of investing in marijuana distribution, someone still has to provide the fans, ozonators, fluorescents, reflectors, fertilizers, Cheetos, etc. (Side note: Peyton Manning acquired 21 Papa Johns restaurants in Denver a month before legalization in Colorado.(14) Just sayin’.)
As the old adage goes, “When there’s a gold rush, get into the pick and shovel business.”
That’s some good advice.
But there are also some high returns for someone who takes a cue from Joseph Kennedy, anticipates the future, and goes a little off the beaten path. To borrow a page from Marley himself -
“Oh, twinklin’ lee - can’t see the right roads when the streets are paved...”
EDIT: To officially comment on the implied question, "OK, so how can I invest?"
My prediction is that large companies won't jump in for a while (even after full federal legalization) due to the reputational risk. There will be some exceptions like Philip Morris - i.e. companies that don't face that reputational risk, and will move as soon as the legal risk is removed. However, even Philip Morris won't find the risk acceptable until after full federal legalization.
As more states decriminalize marijuana, at some point the federal government will officially say they won't interfere in the states' business. (Already, the general message from the Obama administration is that they will leave most medicinal dispensaries alone, but recent actions have shown this isn't entirely the truth.) Then, after the majority of the states have decriminalized, the federal government will follow suit. My play would be to invest at the beginning of the time period between when the federal government announces an intention of non-involvement and when the federal government officially legalizes pot. During this period the really little guys will grow a fair amount as the possible legal territory expands state by state, then be bought up by the big guys after full federal legalization. There are a few public companies mentioned in the comments below, but for the most part I think this will be a venture capital play.
TL;DR
Full legalization of marijuana will happen within the next decade. A multi-billion dollar black market industry coming suddenly into the light presents an investment opportunity unmatched in its predictability and velocity, and will provide high returns on investment, both direct and in supporting industries.
Note: Some valuation discussion here: //www.wallstreetoasis.com/forums/marijuana-valuation
Sources
PM me for the sources - since I changed my handle for this blog, I can't post hyperlinks with this account yet.
EDIT: Sources have been added to the post.
Great article, this is something I have wanted to get exposure to in portfolio for a while now but have never taken the initiative to find a good play. I know there are a few pink sheets and small caps that are a direct play on this, but would like to hear any additional suggestions on how to invest
I first saw the username then read the first sentence...I swear I thought it was a Walter White trolling account :)
Not a good day for the ags today lolz... POT, MOS, IPI down ~15% to 28%
More seriously though, how do you invest in marijuana w/o having to build a small business? There's also the legal risk in being the "first mover". And if legalized companies such as PM will have far more resources to build the infrastructure to produce a standardized product in high volumes, but there remains the uncertainty of which blue chips will take over the industry.
I think the subtle embellishment throughout the article underplays the actual risk within the investment. As an international student (from a country with relatively relaxed drug laws) on exchange in LA I have noticed an implied bias within the populace about pot use, I think this bias is at play within the article.
Part of this is due to the fact that a large component of the risk within this investment is political and regulatory. Being able to bet that cannabis use will become more common and the industry will grow is one thing, but being able to predict the form of this industry, let alone in comparison to all other industries (implied globally) for the next decade, is another thing.
Simply put I think the main issue with this thesis beyond being influenced by an unacknowledged bias, (why pot compared to any other 'new' drug? Is it because of its extensive black market use and social acceptance? If so then how is the market meant to grow? Or is it because legalisation of a 'recreational' drug is meant to be more profitable than a health-related drug?) is that it is far too blunt, there is no analysis on what the industry will look like, how it will be regulated etc. I mean judging from the current LA environment, getting a 'licence' for medicinal weed is incredibly easy, and incredibly profitable for the sharks of the world to pitch to people. Is this model sustainable? Are we to expect pot could be sold like cigarettes? There is so much uncertainty as to the form the market will take.
I simply think that the analysis presented, through undoubtedly thorough fails to address anything beyond the fact that pot is an emerging, exciting industry in the US, and that as a consequence of this excitement may experience a bubble. When this bubble will take off, when it will pop, nothing is predicted.
What are your thoughts of investing in a large tobacco company like PM? I'd assume that those tobacco blue chips will be positioned already to move into cannabis the second it become legal, they already have the distribution chain all they need is the plants and to maybe convert some factory space. Seems like a way to potentially catch some of the upside without the big risks associated with investing in a purely pot business.
Granted this is heavy on theory and light on facts. What does everybody else think?
Even if pot becomes legalized, it's not an investable thesis right now, making your title a little misleading. The best bet to play this thesis in my mind is Phillip Morris or some other tobacco company, because they already have the distribution and could invest tons of money to get everything up and running before little operations even had a chance.
The most profitable play here would be starting a pot company, right? Large tobacco companies will no doubt be in great shape to take advantage of this, but pot goes much further than joints, blunts, etc. I really think there is a big player brewing up a business plan specific to pot, and they will make cake here soon.
Like most people have mentioned so far, of course it's not investable from a public equity perspective. This is an early stage VC play. The real winners here will be the ones who start early, build a sustainable, growing business, and cash out on the sale to whichever corporation moves into the space at a later stage.
Exactly - so it's an early stage VC opportunity. Focus on the supply side (as opposed to distribution) and cash out to PM later.
this reminds me of a mixergy.com interview I watched about a company called Grav Labs...
The guy is in the right vertical at the right time and busted his ass through some very hard times. Inspring story.
http://mixergy.com/dave-daily-grav-labs-interview/
The two long-term drivers of real economic growth are technology and productivity. Marijuana's effect on the latter means there will be a catastrophic RECESSION once legalized. Short the market.
You so damn high right now. Way too much govt regulation right now. Safer bet would be to wait until all is legalized and PM & MO start selling it. Or you could just by them now, close to 4 or 5% dividends.
Acknowledged. Understand that the post is written from the perspective that everyone thinks the investment is impossibly risky. My point was that the relative predictability of when an industry will start makes it less so. Like I said, most people won't be able to take the kind of risk that's necessary to win big here, but you can always invest in the complementary goods and services.
Exactly my point: the risk is almost entirely political and regulatory, and that risk is widely mis-assessed. And you don't have to predict the form of the industry (which, like you say, is completely impossible). There are going to have to be suppliers, so invest in the suppliers. There will always be losers, but for the most part they'll get big, become specialized, or be scooped up by giants like Philip Morris.
I think it's relatively easy to structure investments to capitalize on an industry without betting on a specific company, although the first VCs in the ring will have to take some risks. I also think it's a little premature to worry about a bubble before the growth even starts. When you get out is up to you - I'm just suggesting you get in now.
Thanks for your comments - all good points.
What about companies like CBIS (Cannabis Science) or MJNA (Medical Marijuana). I understand they're both very small and attempting to capitalize on medical sales of it, but still- they seem to be pretty pure plays no?
I like you. The 95% of people in this country who share your opinion are going to make me rich.
It's so perfect for PM as cigarettes lose steam in the U.S.
This is a joke. Quit wasting your time. Will it happen in our lifetime yes, when all of the old people in government die.
There's too much lobbying and old guard people in politics right now. Better wait a few years
I agree with your premise, but those circumstances exist in any new industry. There will always be big players who can crush smaller competitors, but there will also always be little guys who win big. Take social gaming for example - you had Nintendo, Sony, and Microsoft, but it's Zynga that capitalized on the opportunity.
I'm also not sure that "commodity" will be an appropriate label. It could turn out like alcohol - there are already a lot of specialized strains with different characteristics.
Either way, your point is definitely valid, but I still think there is a great opportunity to capitalize on the time period between legalization and industry maturity.
A lot of businesses could be started surrounding marijuana. If there is a gold mine then sell shovels thats how you will make shit ton of money.
Could anyone elaborate on this - what are the public companies which will be well positioned in cannabis value chain in case legalization takes off?
Bump
Some great discussion here. Definitely some money to be made once production and distribution moves from relatively small dispensaries/drug dealers to corporations.
My apologies if this has already been posted, but a pretty humorous article on a former Microsoft exec trying to break into the marijuana business. The 45 year old dude, who just started smoking about a year and a half ago, described his "stash" as "the dankest of dank".
http://www.vice.com/read/the-40-year-old-pot-virgin
I don't know enough about the production process, especially what would be required for mass distribution, but like you said the "fans, ozonators, fluorescents, reflectors" could bea good indirect play. If legalization leads to mass production by the big players, would these parts manufacturers see a lot of topline growth? Might be worth looking into, but again, its hard to predict which of these companies the effects will trickle down to
Here's your indirect play: Invest in McDonalds, Burger King, Wendy's, Visine and Bic.
Even if pot becomes legal, I would rather still buy from an individual grower or growing firm rather than a big business, even if it costs more to do so. I wouldn't go to a gas station to buy spliffs or rolled marijuana on the cheap, I would go to a small grower/distributor shop or a personal contact. It seems making the market to scale would be different than doing so as if it were the tobacco or alcohol market, as many enthusiasts and recreational users enjoy the small circle aspect of using it. Cliffs: Wondering if marijuana could be legalized and capitalized/marketed as alcohol was. I don't quite think so....
My thoughts, for what they're worth....
Some have already mentioned it, but I think the distribution side is still to risky. To me, a more risk-averse (appropriate) investment today would be on suppliers/cultivators.
The fans, ozonators, etc.. have been mentioned and might be the play, but that's productions TODAY. If mass production is legal, would pot still be grown under lights as it currently is in peoples' basement or is it grown in fields naturally like other legal crops? I don't know the answer, but understanding that lets you know if the investment is ozonators and fans or farmland and specific farming machinery.
Note: If it turns out that ozonators are made by GE and the farming equipment is made by CAT this may be a moot point. Yes, you can get their dividend while seeing if they grow due to pot. However, given their size and structure you won't get explosive growth for those companies. The key is to understand how the pot will be grown and cultivated and then find a niche company that has the potential to explode because of it.
This. Also I can see the major pharmaceutical companies making a push into this, going after the medical supplement angle, leveraging their own capital, R&D resources and distribution. Their brand names would lend further credibility to this nascent new industry.
P.S. Marijuana is hardly considered counter-culture in this day and age. It is not even a real psychedelic and it causes a lot less damage to the lung than cigarettes.
Nice write up and have to agree with sirtradesalot
The only real play is buying up Phillip Morris
Excellent point.
Exactly. Although it would also be useful to take this factor into account in your long-term GE analysis.
I think it's going to be a while before big pharma involves its brand names. Pot may not be counter-culture in your mind (and the younger age groups), but to the general public it is. I might even argue that the reputation risk (at the moment) is as big a factor as the regulatory/legal risk.
It is interesting that most people have implicitly stated that the big risk factor here is reputational (not regulatory/legal) by repeatedly bringing up PM as the only possible big company/end game play here. As a "vice" company, it's one of the only players that can step in anytime soon without facing that risk. The fact that this barrier to entry exists is perhaps the strongest argument for my case that there will be plenty of opportunity throughout state by state legalization and early industry growth for someone other than the big guys to make a big profit here.
You went absolutely buck on that post. +1 SB
Bloomberg interviewed some guy a while back who had raised a marijuana PE fund.
is this fixed?
Not yet - if you go to "Edit", you'll see the links. Let me know if I'm messing up the html coding.
yeah i see it in the code, can't figure out why they're not showing, ill ask pat
I swear my sources are valid and I'm not deliberately trying to hijack the coding.
http://edition.cnn.com/2013/08/08/health/gupta-changed-mind-marijuana/
Recent article: "Dr. Sanjay Gupta says we have been "systematically misled" on marijuana"
Takes a big person to admit they were wrong. I've read numerous stories lately about how people who were formerly against marijuana changed their stance once their child needed treatment and medical marijuana was the only thing that helped. It's the same with everything though, I don't see how people can have such strong opinions on issues without experiencing/fully knowing both sides.
CNN - No Federal Challenge to Pot Legalization
And there we go.
As far as I know, many clinics and other dispensaries that marijuana is legit being a medical herb. It wont last long that they will approve it on all the states.
$50K to invest in cannabis industry... what should I do? (Originally Posted: 11/27/2017)
A buddy of mine and i are pooling $50K of our own capital to invest in the cannabis industry. Wanted to get ideas on how to invest.... we had thought of using that $50K as growth equity into an existing company. So we remove all upfront risk and see historical cashflows.
ajb1515, shame nobody has responded. Maybe one of these topics will help:
More suggestions...
Fingers crossed that one of those helps you.
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