De Tokeville: So You Want to Invest in Marijuana?

I never liked pot when I was younger. But these days, just two glasses makes me feel like hell the next morning.  Enter marijuana. Or, to be more specific, gummies, which are so much milder and great for putting you right to sleep. Marijuana and menopause? Just say yes.

If a square like me thinks marijuana is okay, imagine the economic potential of legal pot overtaking the illegal market, and getting people like me to cut down on booze and take up weed. If there was ever a growth potential stock, marijuana is it.

So why aren’t we all buying pot stocks? Technically, I can’t buy gummies in my state (NY). I can get someone who lives in California, or a handful of other states, where recreational marijuana is legal, to send them to me but, technically, that person would be breaking the law. Pay attention to this word “technically” because it’s important in the wild west of legalized marijuana sales.

Even though some states have legalized weed, the federal government still views it as illegal. For that reason, there are no American marijuana companies listed on any U.S. stock exchange and banks, which are closely regulated by the Feds, are leary of doing business with marijuana companies, lest they be shut down or, worse, arrested. After all, the U.S. just spent a gazillion dollars prosecuting El Chapo for selling marijuana in the U.S.

In Canada, however, marijuana is legal  and Canadian pot companies can be bought and sold on U.S. stock exchanges. Indeed, it turns out I am not the first person to think of investing in marijuana (imagine that!)–the value of  all these stocks is currently $14 billion dollars, despite a whole host of problems, including anemic revenue and all the usual scary cash-burn rates of start ups.

But wait, you’re thinking, pot is easy to grow! What’s the problem? Let’s go back to that word, “technically.” Because of the crazy quilt nature of legalization, pot still can’t cross state lines.  So whoever wants to sell pot, must grow their own, which is a little like requiring a baker to grow her own wheat. Inefficient, to say the least. What’s more, some states have been lax about regulations, giving licences to whomever asks; while others have been tightfisted and highly (some might say dubiously) selective.  In Oregon, any comers were granted licenses but that flooded the market and drove prices down.

Other states, like Arkansas, have only granted a licence to a cabal of former government officials and lobbyists, which is very similar to how casino licences work. (For an excellent fictionalized account of the good old boy back scratching in this arena, watch the television show Ozark.) I find it highly amusing that several pot companies have hired former Republican officials  like ex-speaker of the house, John Boehner, to sit on their boards.

Are you sensing a pattern here? It’s all very chaotic and nascent. The smart money is saying, wait this out. As Barron’s wrote last week (2/18/19), “Sorting winners and losers so early on is virtually impossible. Better to wait  and see how many of these outfits can turn a profit.” Meh, where’s the fun in that? For what it’s worth, I bought Canopy Growth (CGC) several weeks ago when the market as a whole plunged. Since then, it is up 47% from the price I bought it. This makes me sound like a genius but, frankly, no. Just luck and a hunch. Of course, now I think it’s too expensive so I have put a buy order in for an exchange traded fund (ETFMG Alternative Harvest ETF) that owns all these companies, some of whom will certainly die but others will grow and flourish, thereby spreading the risk.

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