Justin's note: The war on cannabis is almost over. Countries around the world are peeling back their laws. Soon, you’ll finally be able to profit from this $150 billion market…legally. If you’ve been reading the Dispatch, you know how huge this opportunity is.
Today, I’m sharing a recent interview with Crisis Investing editor Nick Giambruno and Bonner & Partners’ editor at large Chris Lowe that reveals more details on this opportunity. It’s a fantastic discussion that I suggest you read closely…
Chris Lowe: A lot of folks still see cannabis as a dangerous drug. Or at least a time-wasting pastime. Walk me through how the cannabis boom got onto your radar.
Nick Giambruno: I work alongside Casey Research founder Doug Casey. Doug and I are expert crisis investors. That means we chase political and economic turmoil around the world—and the profitable opportunities it creates.
Doug and I spend a lot of time in the world’s most obscure and violent places. That’s usually where we find the worst crises… and the best fortune-building opportunities for our subscribers.
At first sight, cannabis stocks might not seem like a classic crisis investment. The industry isn’t coming out of a brutal bear market, as is the case with most crisis investments.
Instead, cannabis is in the early innings of a mega bull market.
But crisis investing is also about taking advantage of distortions in the marketplace caused by politics. It’s also about profiting from aberrations of mass psychology. This is what Doug and I are doing with the legal cannabis market.
Chris Lowe: When you talk about distortions caused by politics, what do you mean exactly?
Nick Giambruno: The cannabis market has been in one long crisis since the 1930s. A lot of people don’t know this. But that’s when the government prohibited it at the federal level.
In the 1970s, President Nixon turbocharged the crisis when he started his ill-fated “War on Drugs.”
This pointless war has killed an untold number of people. It’s put millions behind bars, even though they never hurt or threatened other people or their property.
It’s even ravaged entire countries. Just look at the horror it’s inflicted on Colombia and Mexico, where the War on Drugs has killed hundreds of thousands of people.
The History of Cannabis Prohibition
Cannabis is one of 11 genera within the Cannabaceae family of plants, along with Humulus (hops), which is used to make beer.
There are several slang terms for cannabis, including “weed,” “pot,” and “ganja.” But the most interesting is “marijuana.”
According to Baltimore newspaperman H.L. Mencken, there are no known examples of the use of this word prior to 1894.
Early supporters of prohibition—and President Nixon—used the Spanish word to reinforce the connection between cannabis and Mexican immigrants, who first introduced cannabis to the US.
Chris Lowe: But isn’t that kind of chaos a reason to stay away from cannabis?
Nick Giambruno: It certainly used to be. Thankfully, this bloody war is almost over. Right now, political leaders around the world are rethinking cannabis prohibition. Many longtime “drug warriors” are even changing their tune.
The “War on Drugs” has pushed hundreds of billions of dollars in cannabis profits underground. But most of that money will flow into legal businesses soon.
This is why Doug and I are so interested.
Chris Lowe: Can you give a sense of the potential of the legal cannabis market?
Nick Giambruno: The United Nations estimates the global market for illegal cannabis is worth about $150 billion a year. I think that’s conservative.
For perspective, $17 billion worth of silver was produced in 2016. So the cannabis market is about nine times the size of the silver market—at least. It’s also bigger than the iron, copper, aluminum, coffee, corn, and wheat markets. [See chart below.]
Until now, this entire market was off-limits to investors like you and me. But that’s about to change. The end of cannabis prohibition means we can finally profit without risking jail time.
Like I mentioned earlier, I’ve spent most of the last decade traveling the world scouting for investment opportunities. I’ve never seen an opportunity with as much profit potential as the legal cannabis market has right now.
Chris Lowe: The legal status of cannabis is confusing for most folks. Can you help clear up that confusion?
Nick Giambruno: Cannabis is still illegal in most parts of the world. But in the past few years, attitudes toward the plant have radically changed, largely because of its countless medicinal benefits.
Cannabis can help treat chronic pain and epilepsy, for example. Veterans of America’s wars in Vietnam, Iraq, and Afghanistan also use it to treat post-traumatic stress disorder.
Over a dozen countries in Europe and Latin America—most notably Germany and Mexico—have recently softened their cannabis laws. Canada, too. Over the next few years, this could even happen at the federal level in the US.
You may find that hard to believe. After all, the US federal government still classifies cannabis as a Schedule 1 drug. That’s the most dangerous category.
In other words, the feds consider cannabis as dangerous as heroin and LSD… and more dangerous than cocaine and meth, which are both Schedule 2 drugs.
That’s completely absurd. The good news is this ridiculous policy probably won’t last much longer. After all, 29 states—plus Washington, D.C.—have already legalized medical marijuana. And eight states—plus D.C.—have approved recreational use.
It’s only a matter of time before other states do the same. The economic benefits of legalization are simply too good to pass up.
Chris Lowe: What kind of benefits do you mean?
Nick Giambruno: Well, just look at Colorado. Recreational cannabis use has been legal there since January 2014.
From July 2014 through June 2015, the state took in nearly $70 million in tax revenue from legal cannabis sales. That’s almost double the $42 million it took in on taxes on alcohol sales.
And that figure is only going up. Last year, Colorado’s cannabis industry generated $200 million in tax revenue.
This leads me to another reason I’m bullish on cannabis over the long term—the public pensions crisis.
In the US, unfunded public pension liabilities have topped $5 trillion. Of course, state governments’ go-to “solution” has been to raise property taxes.
Chris Lowe: Is this going to work?
Nick Giambruno: No way. It’s impossible to try to solve the pension crisis by raising property taxes.
This is making state politicians more open to new ideas. It’s why I expect many states to further soften their cannabis laws. They need the money.
Colorado is a great example.
So is California, which politicians in other states watch closely. Cannabis will become legal for recreational use there at the start of next year. A recent study estimated that cannabis taxes will bring at least $1.4 billion into California’s coffers each year.
Soon, cannabis tax revenue will become a permanent part of many state budgets. This will encourage other states to follow suit.
So, I’m betting that the pension crisis will boost the legal cannabis industry in the US. It’s already forcing states to look for new sources of revenue.
Inevitably, and probably soon, even more states will find the economic benefits of legalized marijuana too good to pass up.
Chris Lowe: Isn’t US Attorney General Jeff Sessions—America’s chief legal officer—dead against legalization? In March of this year, he famously called cannabis “only slightly less awful” than heroin.
Nick Giambruno: I understand why some investors are concerned about the legality of cannabis in the US. Comments like that from Sessions have kept a lot of people from profiting from the wave of cannabis legalization.
But like I say, the industry is too big to shut down. There’s too much money and too many jobs at stake. The backlash would be overwhelming.
Also, states’ rights matter to Trump voters. Cracking down on states’ right to legalize cannabis would alienate the people who put him in office. There would be little political benefit, and a lot of political cost, if the Trump White House went after the legal cannabis industry. It wouldn’t make any sense to do it.
Bottom line, the federal government can’t win this war. It will have to surrender sooner rather than later… probably in the next couple of years. And that will be huge for the US cannabis industry.
For now, though, the best way to invest is in the Canadian market.
Chris Lowe: What’s the legal status of cannabis there?
Nick Giambruno: Canada legalized cannabis for medical use nationwide in 2001. Since then, it’s been slowly moving toward complete legalization.
In April of this year, Canadian prime minister Justin Trudeau fulfilled one of his biggest campaign pledges by introducing Bill C-45, the Cannabis Act, which will ultimately legalize recreational cannabis across Canada.
The Cannabis Act creates a legal framework for the production, distribution, possession, safety standards, and sale of cannabis. It will allow adults in Canada to legally buy recreational cannabis from licensed providers.
The goal is to have it implemented on July 1, 2018, which also happens to be Canada’s 151st birthday.
At that point, Canada will be the second country—after Uruguay—to fully legalize recreational cannabis. More important, it will become the first developed Western nation to legalize cannabis outright.
This will have huge implications for Canada’s legal cannabis market.
Accounting firm Deloitte reckons that, once recreational use is legalized, Canada’s cannabis market could be worth $5 billion a year to start. That puts it on par with the Canadian spirit market… the market for whiskey, vodka, rum, etc. And Deloitte reckons that figure could soon be as high as $8.7 billion.
But even that’s probably low-balling it.
One of the top five largest banks in Canada, CIBC, recently came out with a report estimating that Canada’s cannabis market could soon be worth as much as $10 billion. Others think the industry could grow into a $20 billion market within a few years.
Basically, Canada’s cannabis economy is about to explode.
But there’s a problem. Canada isn’t equipped to handle the coming surge in demand.
Chris Lowe: How so?
Nick Giambruno: Right now, Canada has about 1.4 million square feet of licensed cannabis production space. That may sound like a lot. But it’s not even close to the capacity Canada will need to satisfy its pent-up demand.
Some experts say Canada will need at least 14 million square feet of dedicated production space. That’s 10 times more capacity than it currently has. To meet this coming surge, Canada’s cannabis industry will need to ramp up production—dramatically.
It’s a short window of opportunity, which means you must act fast. But investors in the right publicly traded Canadian cannabis growers stand to make a fortune.
I don’t use that word lightly. In November 2014, Doug bought a penny pot stock for 10 cents a share. A Canadian filing in June put the stock at $2. That’s a gain of 1,900%.
It’s why I’ve been pounding the table about cannabis stocks. As I’ve been telling readers, I’ve never seen an opportunity with as much profit potential as the legal cannabis market has right now.
Today, a reader weighs in with his own bullish case for pot stocks…
I don't think that you have any idea as to how these stocks are going to explode. If what they are saying is true about the Mexican cartels starting those fires in CA and burning down the marijuana crops, because that is what has just happened, then you have missed what could be great news for these stocks.
And another responds to our recent essay on where the next major banking crisis will begin:
Doug Casey and several of your editors have been talking insolvency of European banks for a long time, but not much has really happened. ECB has bailed out Italian banks already 3 or 4 times. I am surprised NPL total in European banks is only $1 trillion—ECB has been printing far excess of that, and will print more if necessary. So you and your editors have not explained how this will turn into a “crisis.”
Perhaps you can also explain to your readers how the US banking system will be spared if there’s a banking crisis in a major region such as Europe, or anywhere on the planet.