Winners and Losers When Weed Goes Legit

Posted On Nov 3, 2016 By Dave Gonigam

  • Why many pot growers oppose legalized pot
  • How much longer can weed be an all-cash trade?
  • 1.6 billion Muslims — a new catalyst for gold investment
  • Earthshaking federal issue: Nutella’s serving size
  • New Brexit drama… the staying power of “penny pot stocks”… waiting for the sky to fall… and more!

This whole legalizing-pot thing is getting weird.

All the polls indicate Californians are set to legalize recreational weed in a referendum next Tuesday. And they’ll do so over the objections of… many California marijuana growers. They’ve found a niche ever since Californians voted to authorize medical marijuana 20 years ago. A survey by the California Growers Association finds only one-third of the membership in favor of the referendum, Proposition 64.

Prop 64 supporters understand where the growers are coming from, even if they don’t agree: “I think one of the reasons that many of the growers currently are opposed to the initiative is because they’ve been operating in sort of a quasi-legal status for a while, which means that in many places they haven’t had to face a lot of regulation and a lot of taxes,” says Deborah Small, a longtime advocate for decriminalization in California.

It’s an old story — small players getting squeezed out by Big Business.

The costs of complying with the many regulations set up by Prop 64 — including a slew of environmental rules — might prove to be prohibitive. (The referendum runs to 62 pages!) And come 2023, the state will begin issuing “Type 5” cultivation licenses to big corporations, which would have the capital and the personnel needed to comply with all those regulations.

“It will end our way of life,” grower Laura Costa tells The Associated Press.

Another sign of looming respectability — access to the banking system. “The number of U.S. banks working with pot businesses,” according to Reuters, “is growing, up 45% in the last year alone.”

Of course, weed is still illegal on the federal level. But in 2014, the Justice Department said it would not prosecute banks if they took on state-sanctioned cannabis businesses as customers. The Treasury Department now counts 301 such banks.

That said, cannabis remains an all-cash trade. As we noted at the start of this year, a credit union formed to cater to Colorado’s legal pot industry was denied access to the Federal Reserve’s payments system. A federal judge who upheld that decision when it was challenged in court was sympathetic, however: “I regard the situation as untenable,” said Judge R. Brooke Jackson, “and hope that it will soon be addressed and resolved by Congress.”

Congress might do just that once Prop 64 passes.

Back to the Reuters story: “The National Cannabis Association is pressing Congress for a law that would hold banks harmless for handling pot cash, said Michael Correia, a lobbyist for the trade group. If California legalizes recreational use next week, the nation’s biggest congressional delegation will have a big stake in the issue.”

As we’ve mentioned before, passage is highly likely. What’s a $7 billion-a-year business now is set to more than triple, to more than $22 billion in just four more years.

It’s a true tipping point… captured by this graph of marijuana referendums going back more than 40 years…

“I think California is a go,” says our own Ray Blanco. “Nevada is a go. Nevada built itself on allowing things that other states prohibited. That’s what put Las Vegas on the map. It’s close in Arizona. Massachusetts is going to say yes, and so is Maine.”

Those are the states where recreational weed is up for a vote. And Florida could become the biggest Southern state to allow medical marijuana.

There are literally dozens of publicly traded “penny pot stocks.” It would take literally months of research to identify the ones most likely to soar once Prop 64 passes. But only five days remain before the election — not only in California, but eight other states where marijuana measures are on the ballot.

Fortunately, Ray has put in those months of research for you. We urge you to check out the fruits of that research while there’s still time.

To the markets, where it’s a ho-hum day. The Dow hovers near the round number of 18,000. The S&P 500 hovers near the round number of 2,100. Gold is struggling to keep its grip on $1,300.

The earnings numbers getting the most ballyhoo are those from Facebook. They were plenty respectable, but the Street was hoping for more; shares are down nearly 5% as we write.

No huge economic numbers to speak of. Tomorrow brings the monthly job numbers, which will get far more attention than they deserve because of their proximity to the election. (Really, does anyone vote based on the unemployment rate that’s released the Friday before Election Day?)

If it’s excitement you’re looking for, it’s in the currency markets.

The British pound is up strong, more than 1%, at $1.245. Early this morning, the U.K.’s High Court ruled that Parliament must vote on Britain’s exit from the European Union before Prime Minister Theresa May can begin negotiating the terms with EU leaders. May’s government is appealing the ruling, so for the moment, it’s all short-term noise.

Egypt, meanwhile, is allowing the Egyptian pound to float… although the practical result is that the currency has sunk by 50% against the dollar. The move is a condition of a $12 billion loan from the International Monetary Fund — money the American-backed dictator Abdel Fattah al-Sisi desperately needs.

Background you won’t see elsewhere: Egypt has never been a beacon of economic strength… but the nation ceased to be a net oil exporter in late 2010. The Arab Spring came to Egypt in early 2011 — not a coincidence, as our Byron King said at the time.

A huge new source of investment demand could hit the gold market before year-end — the globe’s 1.6 billion Muslims.

Observant Muslims follow Sharia — the religious law governing members of the Islamic faith. Under Sharia, gold jewelry is permissible. So is gold currency. But to buy gold hoping that its price in paper currency will rise? That’s more of a gray area.

Enter a trade group called the Accounting and Auditing Organization for Islamic Financial Institutions. It’s joining forces with the World Gold Council to draw up gold investment rules that aim to be Sharia-compliant. The rules are currently under a 30-day comment period that ends next Wednesday. They could become final before the end of 2016.

[Thanks to our friend Chuck Butler, managing director at EverBank Global Markets in St. Louis, for bringing this to our attention!]

From the Out-of-Control Regulations Department, Nutella Division: “The Food and Drug Administration is looking into reducing Nutella’s serving size to one tablespoon from two,” reports Bloomberg.

Time was Americans typically put the hazelnut cocoa spread on ice cream. More and more, they’re putting it on toast — at least according to Ferrero, the closely held Italian company that’s made Nutella since 1964. And so in 2014, the firm petitioned the FDA to acknowledge a typical serving is now half the size it was a generation ago.

Two years later, the agency has gotten around to asking for public comment on the “Reference Amount Customarily Consumed for Flavored Nut Butter Spreads and Products That Can Be Used to Fill Cupcakes and Other Desserts, in the Labeling of Human Food Products.”

Hey, that’s the title of the document. If for some reason you’re motivated to tell the FDA how you use Nutella so the agency can make a more informed decision, you can do so at regulations.gov.

Description: nutella-label.jpg

Oy… How many man-hours at the FDA have gone into this project already?

“I realize there is a lot of excitement about the upside to the weed stocks if the California initiative passes,” a reader writes — teeing up an important question.

“But from a long-term perspective, how viable will these stocks remain? Marijuana is basically a weed. Drop a seed in the dirt, throw a little water its direction and presto! A flowering plant that will be ready for ingestion as soon as you harvest and dry it out a bit. You can grow it in the ground, in a flower pot on the deck, in a hydroponic unit in your closet, etc.

“So if the average person can grow their own (legally, mind you), how are these new vendors going to remain in business over the long haul?”

The 5: They might not. There’ve been previous instances of “penny pot stocks” that surge after a referendum result or other catalyst… and then come back to Earth.

“It’s important to note that these stocks didn’t soar for long,” Ray Blanco says. “When investors first realized legalized marijuana was a reality, they quickly bid up shares of any stock with a marijuana connection. As the euphoria wore off, they took a closer look at the companies they had bought and regretted buying in so quickly.”

And so it goes with the vote next Tuesday: “We have enough information to make some educated guesses about which companies could see the biggest pops after Election Day… and which ones have the kind of staying power that will keep their prices afloat longer if there’s a sell-off.”

Yes, it’s speculative. But as Ray explains here, you need put only $50 at risk, with the potential for a huge payoff.

“I get really tired of people saying marijuana has never killed anyone,” a reader responds to yesterday’s mailbag. “With the number of stupid things I’ve seen people do when high, I can guarantee you people have died from marijuana.

“I’m pro legalization of marijuana — I just get really tired of the outright lies and BS from the pro-marijuana folks. For example, in Arizona, they are running ads saying that the schools will get 80% of the revenue if legalized (‘We have to do it, it’s for the children!’). If you actually read the initiative, it says any revenue will be used initially to cover government agencies for controlling, regulating, taxing, etc. There is no limit to how much of the revenue would go toward this ‘infrastructure.’

“Whatever revenue is left after that is divided three ways, with schools getting 40% of something (or nothing). What a load of crap…”

The 5: No doubt. That’s the point of the items that led off today’s 5 — there’s no shortage of nests to be feathered from legalized weed. That still doesn’t negate the investment possibilities. But we suspect you knew that already and just wanted to vent. Nothing wrong with that either…

“Still waiting for the sky to fall,” says an email of the sort we see now and then.

“A few weeks ago, all the chatter was about Deutsche Bank in free fall. Now, nothing. Supposedly, Deutsche was leveraged to the tune of $53 trillion, and a fine from the U.S. was going to topple the whole thing. What gives?

“A few weeks before that, it was the Italian banks. Same question… What gives? (I am pretty sure that Santa didn’t bring them extra bags of money a few months early — if he did, can he come to my house next?)

“It’s like a few years ago: ‘OMG, the dreaded swine/bird flu is here, it’s the worst thing in years, whadda we do, whadda we do?’

“Uh… Wash your hands. That will do it.”

The 5: As the inimitable Doug Casey is wont to say, just because something is inevitable doesn’t make it imminent…

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. There are 350 “penny pot stocks” out there. And Ray Blanco has vetted every one of them, using a five-part screening system.

From there, he’s identified the ones most likely to soar once the votes are in from marijuana referendums in nine states next Tuesday night.

But for maximum profit potential, you have to move before Tuesday. For access to Ray’s research, click here.


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