Marijuana: The Most Controversial Investment in 2019

Bizarrely, marijuana is still considered a ‘Schedule 1’ drug on a federal level in the US, despite being both medicinally and recreationally legal in 10 states and medicinally legal in 23.

Now, according to the DEA (United States Drug Enforcement Administration) a Schedule 1 drug includes the following: ‘heroin, lysergic acid diethylamide (LSD), marijuana (cannabis), methylenedioxymethamphetamine (ecstasy), methaqualone, and peyote.’ This is clearly outdated and hypocritical in regards to cannabis, as their own definition of a Schedule 1 drug is: ‘drugs with no currently accepted medical use and a high potential for abuse.’

Hold on for just a second, doesn’t marijuana have proven medicinal properties? Which provide relief for a variety of diseases?

There seems to be a glaringly obvious contradiction. I’m sure I’m not the first to notice…

The proof that the DEA’s position is long outdated can be seen in the size of the medical marijuana industry. Purely medical applications of the drug saw US$11.813 billion (AU$16.326 billion) in global revenues last year. In Canada, where medical use has been legal nationwide for 18 years, the medical cannabis industry is worth CA$250 million (AU$259.7 million) annually. Here in Australia, the medical cannabis industry is still in its infancy, so it’s only worth about $18 million, but if you look at how the medical marijuana industries have fared in the US, or more relevantly in Canada (as it’s closer to our size) you can rightly assume our untapped market is bursting at the seams with potential.

So why on Earth is cannabis still a Schedule 1 drug according to the US federal government, when their own definition of a Schedule 1 drug no longer applies?

Well, to be honest, the reason is probably political. No matter how clear the benefits to those suffering with illnesses like epilepsy, arthritis, multiple sclerosis, or dozens of others, this issue is simply too controversial for some.

Part of that is likely due to the other half of the marijuana legalisation issue, the scarier, more controversial face of cannabis: Recreational use. (More on that in a moment.)

Now Canada might often be considered as the US’ smaller, slightly less important brother, but when it comes to progressive cannabis policies, they are clearly ahead. On 17 October this year, Canadian Prime Minister, Justin Theroux, legalised recreational marijuana nationwide. Below you can see the partying that ensued at midnight in Toronto when legalisation came into play.

MoneyMorning 07-11-18

Source: ABC

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What an amazing time to be alive! At least, if you’re in favour of adults being allowed to make choices for themselves…

More importantly for us as investors, what has this done for Canada’s economy?

The answer is: $8 billion additional GDP every year, at the very least.

Many may feel unsure or uneasy about investing in marijuana. For the same sorts of reasons, many investors will refuse to profit from alcohol companies, gambling stocks or tobacco manufacturers. If you have been considering investing in this space, how you feel about these ‘sin’ stocks is a decision you’ll have to make for yourself.

However, we will argue that moving these profits out of the hands of criminals and into the pockets of legitimate, legal investors is an overall benefit to society (and the economy).

The fact is, by legalising marijuana — whether for medical or recreational purposes — we aren’t truly creating billions in GDP. We’re simply moving it out of the black market and into the light of day. Whatever your stance on recreational use of marijuana may be, the medicinal use of the plant has been shown to provide targeted pain relief for a variety of diseases.

The truth of the matter is that this ‘recreational’ industry already exists within Australia. Large amounts of money move around between producers, distributors and consumers — all away from the law’s eyes and government’s control. Past studies have found our fair nation has the world’s highest per-capita use of the ‘devil’s lettuce’.

According to a United Nations Office on Drugs and Crime (UNODC) 2017 survey, 10.5% of Australians already admit to smoking marijuana recreationally. That’s not including the people which were not surveyed or simply didn’t want to disclose their private use of the magical herb. Market intelligence firm Prohibition Partners estimate that the medicinal marijuana industry in Australia could be worth as much as $1.2 billion by 2024, and $3 billion by 2028. The numbers on the recreational industry are a bit dodgy, but you can imagine…

That huge amount of money in rotation, for now, is totally inaccessible to investors like you. 

It seems silly that we haven’t formally monetised this industry earlier, especially when you look at what it’s done for the economy and stock markets of countries which have legalised cannabis…

But that may not be the case for long. The momentum behind a more progressive approach towards cannabis is catching wind in Australia. Recreational legalisation may be closer than you think.

Our small-cap specialist Sam Volkering has already found a number of Aussie companies paving the way in legal cannabis, for Australia’s brand new medical market, and for export to nations like Canada and much of the US, where recreational use is legal. To find out about the tiny Aussie companies riding the wave of legalisation to potentially massive returns, check out Sam’s research here.

This week in Markets & Money

Toronto wants to build a smart city from the ground up, with sensors and smart devices built into the pavement itself. And who have they enlisted to help them? Google, of course. But as Selva wrote in Monday’s Markets & Money, will this mean our cities will become a hub for data collection? To find out more, click here.

In theory, a world without cash sounds great. No risk of getting robbed, no need to visit an ATM and no loose change in your pocket. But as Selva wrote on Tuesday, when it comes to putting yourself at the whim of the banks and political events, a cashless society is an extremely risky place. To read the full story, click here.

Amazon is getting into financial services. The online giant recently launched a credit card with no annual fees, 5% cash back on all Amazon and Whole Food purchases, and 1% in other purchases as long as you have an Amazon Prime membership. But as Selva wrote in Wednesday’s Markets & Money, with more tech companies getting into finance, the banks are starting to get worried. To learn more, click here.

Retiree Alicia Castilla was busy watering her garden when Uruguayan police stormed into her property and arrested her. The police then proceeded to confiscate much of her property. This included the plants she had been watering only minutes before. On Thursday, Selva brings readers’ attention to Australia’s position in legalising recreational marijuana. The Australian Capital Territory (ACT) is currently looking at a bill to legalise cannabis for personal use, but will it come into play, and if so, when? To find out more, click here.

Much like the current alcohol industry, recreational marijuana could create a lot of jobs…and lots of new tax dollars. Yet, differently to alcohol, the marijuana industry could become even bigger, as it also has medical benefits. To learn more about what Selva has to say about this growing industry in Friday’s Markets & Money, click here.

Best wishes,

Julija Zivanovic,
Editor, Markets & Money

Markets & Money is unlike any other finance newsletter. Our mission is to look at the world of investments and finance in a sceptical and contrarian way. Our editorial team looks beyond the headlines and obvious explanations to bring you what we think is really moving the market. More importantly, we’re trying to show you where the next big opportunities and where the big risks are that you might not be aware of. In Markets & Money you’ll read about the state of the Australian housing market, the future of the commodity boom, China’s rise to an economic superpower, the fate of the US dollar, and of course a whole lot more.

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