Justin’s note: Yesterday, I showed you why marijuana stocks are about to take off. Today, I’m handing the reins to my colleague E.B. Tucker, editor of The Casey Report, who has more exciting details about this huge opportunity. E.B. says there’s a certain kind of marijuana stock you should be focusing on right now…

By E.B. Tucker, editor, The Casey Report

George Remus was so rich, he once gave every guest at his dinner party a brand-new car.

He hid a set of keys under their dinner plates. When his servants cleared the table, guests couldn’t believe their eyes.

This was the early 1920s, when owning a car was a luxury. Getting one as a gift for attending a dinner party was unfathomable. Remus gave them away by the dozens. He had too much cash.

He got filthy rich when the U.S. government outlawed alcohol on January 16, 1920. Over the next five years, he made over $40 million. He barely knew how to spend his illicit, all-cash fortune.

When the government made alcohol illegal, the price skyrocketed. Lawful companies could no longer produce the product. Backyard bootleggers thrived. Remus was the biggest.

Americans like to drink. Criminalizing alcohol didn’t stop them; it only made booze more expensive. It also made drinking dangerous. Instead of buying a branded product in a store, drinkers had to turn to criminals for their supply. The criminal gangs got the booze from Remus.

Within a decade, the government’s bloody war on booze lost support. The law fizzled and alcohol became legal, regulated, and taxed. The free market took over.

Organized companies like Anheuser-Busch could then legally mass-produce alcohol. They had quality standards consumers could trust. The licensing process made regulating and taxing booze easy.

The massive profits that lured criminals and bootleggers into the alcohol business vanished.

We can make money today investing in companies doing exactly what Anheuser-Busch did after Prohibition.

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• I’m talking about investing in marijuana companies…

Today, the marijuana market looks about like alcohol did at the end of Prohibition. For years, small-time pot dealers growing a few plants in the spare bedroom made a living peddling illegal weed. Their product was often inconsistent. Getting a steady supply of it from them was nearly impossible.

Simply put, prohibitions on products people want to consume creates high prices, unreliable quality, and worst of all, a flood of cash into the criminal black markets.

With marijuana, that’s all about to change.

In Canada, the change is imminent. Medical marijuana use is already legal there. Recreational use should be legal in the first half of next year. The final decisions are not about if weed should be legal, but how it should be taxed and regulated.

Canada’s economy is about one-tenth the size of the U.S. You would think the Canadian pot market would be about one-tenth the size of the U.S. market. But Canadian pot companies have a tremendous head start on their southern competitors.

Just like the Busch family stood ready to capitalize on legal beer, Canadian pot companies have ramped up in advance of legal weed.

And now is the time to get in, before the floodgates open.

But first, you have to know a little bit about the marijuana business. And the best way to understand the size of this opportunity is to take a close look at the still-underground U.S. pot market…

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• The first-mover advantage…

Right now, over 50% of the U.S. allows some form of legal marijuana. Eight states and the District of Columbia have even decriminalized recreational use.

While the U.S. is on track toward legalization, lawful companies still can’t produce or sell pot. A company like Altria, owner of Philip Morris’s iconic Marlboro brand, could easily mass-produce low-cost marijuana. The problem is it would violate U.S. federal law. Like the beer companies during Prohibition, that’s a case it can’t win.

But legal or illegal, the appetite for marijuana in the U.S. is massive.

Right now, the legal market for cannabis is approximately $6.9 billion in the U.S. Add in estimates of what’s sold on the black market and the numbers range anywhere from $46.4 billion to $100 billion.

That means 87%–93% of those sales happen in the dark shadows of society. People who want marijuana are forced to buy from shady characters in dark alleys and on dangerous street corners.

In fact, as you can see from the chart below, Americans crave cannabis more than wine, chocolate, or candy.

Again, the total amount of pot sold in the U.S. is hard to estimate. It’s difficult to compile usage data on an illegal product. We do know the government’s stance on marijuana creates a big cost for society.

According to the American Civil Liberties Union, police arrested 7 million people for marijuana-related charges in the last decade. In 2010, that came out to one arrest every 37 seconds. The same study says states spend $3.6 billion every year enforcing marijuana laws.

These are shocking numbers. Canada, and now several U.S. states, spend very little policing legal weed. At the same time, those societies seem about as safe as they were when pot users were criminals.

We think these enforcement costs could fall by as much as 90% when pot eventually reaches full, nationwide legal status. Instead of spending billions policing marijuana users, governments will collect billions in tax revenue.

With Canada’s legalization movement years ahead of the U.S., established companies in the cannabis business can legally operate there today.

When the U.S. finally allows commercial production, the top Canadian companies will be first in line to benefit.


E.B. Tucker
Editor, The Casey Report

P.S. I recently recommended three Canadian cannabis companies set to thrive in the years ahead. And now is the time to bet on them… before it’s too late.

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