Aaron Pickert: Legal marijuana presents opportunities
In a time when few can agree on anything, there is overwhelming support for marijuana legalization. According to Pew Research Center, only 8% of Americans prefer to keep marijuana illegal in all circumstances. Because the pandemic has caused high unemployment and shortfalls at state and local budgets, the impetus for more states to legalize medical or recreational marijuana has likely been pulled forward a few years.
During the pandemic, cannabis businesses have been deemed essential, and business has been booming. New groups of people have turned to alternative and natural medicines while they can’t visit their doctor or chiropractor. Dealing with anxiety and sleepless nights during the pandemic has boosted sales during the second quarter. Many states are reporting double-digit quarter over quarter growth. Not something that many industries can boast.
Illinois started its legal recreational market this year, and has already reported bringing in $52 million of tax revenue in the first six months. That’s about double what it projected. New Jersey and likely Arizona will have cannabis on their ballots to legalize recreational use this November. You can bet that New York City and Philadelphia, which already have medical markets, won’t want to lose the tax dollars on people jumping the border. They’ll likely push to legalize by legislative process in 2021. If all these dominoes fall, roughly 80% of the population would live in a legal recreational state.
With marijuana as a schedule 1 illegal substance, banks have been reluctant to deposit money from these operations. Proponents of cannabis reform have been trying to pass the States Act and the Banking Act. The States Act would give states full protection from the federal government, whereas the banking act allows these businesses to utilize the banking system. These two events would be watershed moments that would essentially usher in full legalization.
The opportunity now exists for individual investors to actually get in front of institutions on this investment theme. Rarely do we get that opportunity. Typically, big business is private or brought public through an IPO at elevated prices. If the Banking Act passes, these companies could up list to major exchanges. Companies like Vanguard and Blackrock would be able to purchase these stocks. Currently, they cannot.
With banks paying you next to zero interest for your deposits, investors have flocked to companies like Amazon, Apple and Zoom. They are willing to pay high premiums for companies that have predictable growth and cash flow. If cannabis stocks received similar valuations, they would be multiples higher than where they are now.
I know this investment isn’t for everyone. While the morality of legal marijuana is still an open question for many the inevitability of a federally legal industry seems far more certain. An investment in this sector could pay large dividends over the next few years. I have studied the market in depth, identified who I think will be the largest benefactors, and have a strategy I think will maximize the potential return on this investment thesis. If you’re interested in learning more, you can contact me at email@example.com
(Past performance is no guarantee of future results. Advice is general in nature and not intended for specific situations)
Aaron Pickert, CRPC, is chief investment officer at Stewardship Capital in Independence.