Ground-Floor Opportunity

Posted On Jun 20, 2016 By Dave Gonigam

  • “A once-in-a-lifetime opportunity to catch an industry at the beginning”
  • Hard-core drug warrior opens up to medical marijuana research
  • Risk on: Traders heave a sigh of relief at new Brexit polls
  • Rickards on the Fed’s latest policy lurch, and a three-month outlook
  • Careful how you describe your online payments…
  • The case of the missing Rickards mention… marijuana and “the cloud”… the ongoing process of earning credibility… and more!

“The first time I was in this business was when I was in eighth grade, selling dime bags,” says Ron Silver.

Mr. Silver “went legit” as an adult, running Bubby’s restaurants in New York City. But now he’s getting back into the marijuana business. “He’s making marijuana-laced juices,” reports New York’s cable news channel NY1, “that will initially be for sale in Oregon,” where recreational pot is legal.

Silver was among more than 100 exhibitors late last week at the Cannabis World Congress and Business Expo in New York. At the first edition of this annual event in 2014, the exhibitors numbered a mere 15.

Nice growth trajectory, no?

“This is a once-in-a-lifetime opportunity to catch an industry at the beginning,” says Dan Humiston, president of the International Cannabis Association.

OK, so the man is “talking his book.” He wants to believe — and wants you to believe — legal marijuana is the proverbial next big thing.

But he has a point, says Andy Joseph, owner of Apeks Supercritical, makers of a machine that extracts oil from pot plants for medicinal purposes: “Every single company in this industry is not a large pharmaceutical company or a large manufacturing company. Every single one of them is entrepreneurial startups, just like mine.”

Then there’s the media coverage of this expo — or lack thereof. Look for it on Google News and the only in-depth treatment you’ll find is from the nascent marijuana trade press. New York TV stations have some superficial stories. But mainstream national news outfits are nowhere to be found. Maybe they figured the event was one big Cheech & Chong joke, not worth their trouble. The Twittersphere did little to dispel that notion…

Point is the legal marijuana biz is still beneath the radar, as long as weed remains illegal on the federal level.

And yet… “Based on Colorado’s numbers, if it was legalized throughout the U.S., we’d have a $120 billion business just on recreational,” Dr. Stuart Titus tells New York’s Fox station. Titus is the president and CEO of Medical Marijuana Inc.

So ponder that. A $120 billion business from recreational weed — not counting the medical side of it. And medical marijuana is now legal in fully one-half of these United States.

Seen in that light, our own Ray Blanco’s estimation of the total industry’s potential size is, if anything, conservative — $100 billion, up from $5 billion today.

As we explained last week, Ray has strong reason to believe the federal government will take pot off its “Schedule I” blacklist sometime this summer — likely by the first of August.

Ray has seven reasons for that… and this morning’s newspaper here in Agora Financial’s home base of Baltimore reinforces one of those reasons.

One of the biggest prohibitionist voices in Congress is softening his stance.

Two years ago, Rep. Andy Harris (R-Maryland) made national headlines when he tacked an amendment onto a spending bill — prohibiting the District of Columbia from decriminalizing marijuana.

But this week, he’s introducing a bill that will make it easier for medical marijuana researchers to win approval from the Justice Department to pursue their work. “Part of my frustration in the entire debate around legalizing medical marijuana,” he tells the Baltimore Sun, “is that there really isn’t good scientific evidence about what it’s good for and what it’s not good for.”

So Harris is open to examining more of that evidence. And given his background as an MD trained at Johns Hopkins, his opinion carries more weight than usual around Capitol Hill. The tide of opinion is shifting.

But the big shift — the one that really counts — is within the executive branch.

Two months ago, the Drug Enforcement Administration gave the go-ahead for testing and treatment of veterans suffering from post-traumatic stress disorder using marijuana. Advocates of this research believe it’s the first time the DEA has granted permission to use raw weed in a placebo-controlled trial.

“In order for marijuana to remain a Schedule I substance,” says Ray “it must contain absolutely no medical properties whatsoever.

“The fact that high-ranking U.S. government officials are now referring to marijuana as medicine tells me (and just about everyone else paying attention) that we can expect a major change to national marijuana laws.”

To maximize the profit potential — Ray figures you could make at least 10 times your money — you want to consider getting into one or two select medical marijuana plays before that decision comes down. The DEA has promised a response to a congressional inquiry on the matter by midyear. Which means it could come any day.

Ray has two names in mind… which he describes in detail right here.

To the markets… where a scenario we anticipated on Friday appears to be playing out.

With the “Brexit” referendum only three days away, new polls in Great Britain show a decisive turn in favor of staying in the European Union. Last Thursday, a pro-EU member of Parliament was assassinated. On Saturday, the suspect appeared in court and when asked to state his name said, “Death to traitors, freedom for Britain.”

As we suggested Friday, the market was sussing out a shift in public opinion that could be described, however unjustly, as “Brexit supporters = wack-jobs.”

With confirmation from the polls this morning, it’s a “risk-on” day…

  • Britain’s FTSE index closed up 3%; the major indexes on the European continent closed up even stronger. And as we write, the S&P 500 is up 1.25%, at 2,097
  • Bond prices continue to fall, pushing yields up. The 10-year Treasury is up to 1.67%, a far cry from the 1.53% before the attack last Thursday
  • Gold pushed back toward $1,300 by day’s end Friday but is giving it all back today; at last check, the bid is down about 1%, at $1,285
  • Gold’s fall comes despite a lack of strength in the greenback; the dollar index is holding steady at 93.7
  • Crude is up more than 2.5%, at $49.23.

“I expect the current dovish stage to continue through most of the summer,” says Jim Rickards of Federal Reserve policy.

The Fed stood pat on interest rates last week, and chairwoman Janet Yellen all but ruled out an increase at its next meeting, six weeks from now. It’s the latest twist in a series of twists and turns going back to May 2013, when Yellen’s predecessor Ben Bernanke first suggested “tapering” the Fed’s bond purchases.

The story of the last three years has been one of the Fed lurching back and forth between “hawkish” and “dovish” signals to the market. “This reveals that the Fed has no idea what it is doing and cannot pursue an independent monetary policy,” says Jim. “What the Fed does is jawbone the markets one way and then reverse course when the markets batter the Fed and threaten to tank.”

In any event, the current dove mode “is bullish for U.S. stocks, gold, yen and euros and also indicates a weaker dollar,” says Jim.

“By August, we may hear hawkish talk again, which may cause a reversal in those trends. But you can ignore that noise and look for an improved entry point in the gold and yen trades. Then get ready for the next dovish stage by the September Fed meeting — just in time to help Democrats in the election!”

Memo to anyone transacting on PayPal or similar platforms: No jokes about ISIS.

At least that’s our takeaway from the story of one Ben Guarino. Earlier this year, a friend bought him two pitchers of beer at a bar in New York. He paid the friend back using Venmo, a PayPal-owned app that lets people send money to each other using their smartphones.

But Guarino’s $42 transaction was rejected because it had the memo “ISIS beer funds!!!”

“Telling a friend you’re paying him back for ‘ISIS beer funds!!!’ is not a particularly good joke,” Guarino writes at the Inverse website. “I knew this as I was typing it at 2 a.m. on a Sunday, but what I did not know is that it’s an even worse joke on Venmo because the federal government will detain your $42.”

Guarino tried to explain to Venmo that it was a drunken joke and not a very good one. But an officious person at Venmo replied, “Due to OFAC regulations, we are not allowed to give the funds back to you or issue a refund.”

OFAC is the U.S. Treasury’s Office of Foreign Assets Control — the outfit that, among other things, is charged with stopping the flow of money to terrorists. Mr. Guarino is now filling out OFAC forms trying to get his $42 back.

An isolated case? Don’t tell that to Bruce Francis of San Francisco.

He wanted to transfer some money to his dog walker from his Chase bank account. In the notes field of the transaction he wrote “Dash” — the name of his dog.

Somehow, someone at Chase interpreted that to mean “Daesh” — which is one Arabic name for ISIS. Francis had to jump through a bunch of hoops with Chase and OFAC to get the payment cleared.

Which, remarkably, Francis was willing to do: “I think anything we can do to stop the terrorists and the funding of terrorists, let’s do it,” he told the local Fox station. “And if it means an inconvenience to me and my dog walker, then that’s a price I’m totally willing to pay.”

Golly… Don’t you feel warm ’n’ fuzzy? And safe, knowing OFAC is on the case?

No? What sort of unpatriotic cynic are you?

[Ed. note: Both of these stories came to our attention through the blog of Peter Van Buren, a State Department whistleblower. His 2011 book We Meant Well is a tragicomic chronicle of his time spent nation-building in “postwar” Iraq.]

“A 5 Min. Forecast without a Jim Rickards regurgitation — did I miss something?” reads a brief email we got after Friday’s episode.

The 5: Heh… Yes, we realize Jim has had an outsized presence in The 5 of late, relative to our other editors.

But that’s because we’re in a particularly dicey time for the economy and the markets. Jim joined us in the fall of 2014 — not long after the dollar began a run-up for the record books and corporate profits peaked, at least for this post-2008 economic cycle. The stock market has done a lot of up and down since then, but essentially has gone nowhere.

Gone are the days when you could throw darts to pick names in energy and biotech and all but be guaranteed you’d make money. Now gold is staging a comeback at a time even many gold bugs had left it for dead.

All in all, Jim’s heavy duty “macro” outlook is well-suited for times like these. We couldn’t be more proud to have him on board and regularly contributing his insights to The 5. Even a subscriber to Jim’s full suite of services told us recently how much he enjoys our daily missives. Perhaps the “regurgitation” helps to fix Jim’s many and varied themes in the mind…

“Marijuana… cloud… Yes, I see the connection,” a reader chuckles after we described Microsoft’s joint venture with a pot-themed startup as the firm tries to grow its cloud-computing business.

“Freudian slip?” writes another. “Intentional?”

The 5: We thought about making a smart-aleck remark in the course of writing Friday’s episode. In the end, we decided it would be a distraction. Better to let clever folk like you write in and we can milk it for another day…

“C’mon, man!” concludes today’s mailbag. (And it’s not even time for Monday Night Football…)

“You guys are starting to sound like the hype stock guys we had back in the ’70s and ’80s,” a reader writes after seeing Ray Blanco’s assessment of the marijuana industry’s imminent leap to legitimacy.

“You’re picking dates that don’t happen — that’s not any good.

“Are you going to be credible? If not, I’m going to cancel my subscription.”

The 5: “Going” to be credible?

Credibility is something we have to earn time and time again.

An editor can make a huge, correct call — but it’s of no comfort to someone who subscribes to the publication after that call only to find the next call doesn’t work out so well.

All any editor can do is deliver his or her most thoroughly researched ideas. Not every one of them is going to pay off. The risk potential goes up the smaller the company — and one of the two marijuana plays on Ray’s radar is in microcap territory.

But Ray has spent all spring examining the evidence. “Put it all together,” he says, “and it makes a pretty compelling case that the DEA will be forced to change its view of medical marijuana. The only alternative is to take tremendous leaps of logic to justify keeping it on Schedule I — ignoring both popular opinion and science.

“I trust the DEA will make the right the decision. Rescheduling marijuana and its derivatives to a milder classification will have massive shock waves — creating a total market that could be as big as $100 billion per year.”

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. We really think Ray’s onto something. Because for half a century… marijuana has been labeled one of the most dangerous in the world…

The U.S. government considers it more dangerous than cocaine… more dangerous than crystal meth… and more dangerous than crack, opium, morphine, oxycodone and methadone.

But now a new trend is underway in America (and all over the world) where parents are administering cannabis to young children… and health care providers are even giving it to the elderly.

Doctors and scientists now think cannabis might contain the key to treating a wide array of ailments… like multiple sclerosis, Alzheimer’s, epilepsy, PTSD, Lyme disease, Parkinson’s and many, many more.

In one case in particular… cannabis reduced the seizures of a 5-year-old girl from 300 per week… to just one. A reduction of 99%!

In short, the government may have been totally wrong about this substance for over 50 years…

And any day now, the government is expected to “come clean” on the situation.

It’s a fascinating and potentially lucrative situation… with huge implications for a handful of microcap companies in the biotech industry.

Click here for the full story.


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