Canada’s Canna-biz Bonanza

Posted On Mar 28, 2017 By Dave Gonigam

  • Legal cannabis explosion: California in January, then Canada six months later
  • Signs that pot is already a bigger business than booze
  • What happened to the Obamacare-repeal crash?
  • Gold recovers the $1,250 level… and it’s not done yet
  • Russia braces for lower oil prices
  • Researchers revolt against federal schwag (maybe)… the “lacking compassion” reader speaks up… awful Trump memes… and more!

We’re getting closer to that day when legal marijuana will be a bigger business than booze.

At least in Canada, anyway. We’ve been anticipating that day for five months now… ever since the consulting firm Deloitte issued a report saying legal cannabis in Canada could be a $22.6 billion business — more than beer, wine and spirits combined.

“There hasn’t been anything like this — and granted it wasn’t legislated — but you think of the dot-com… flurry, it has that kind of feel to it,” Deloitte’s vice chair Mark Whitmore told the Toronto Star.

Canada’s population is 35.2 million — not much smaller than California’s 38.8 million. So we’re talking a substantial market.

Now comes unofficial word, courtesy of Canada’s state broadcaster CBC: “The Liberal government will announce legislation next month that will legalize marijuana in Canada by July 1, 2018.”

The official word will come sometime the week of April 10. Prime Minister Justin Trudeau is following through on a campaign promise he made in 2015. During the campaign he revealed that while he’d smoked weed only five or six times, the most recent instance in 2010. “We had a few good friends over for a dinner party, our kids were at their grandmother’s for the night, and one of our friends lit a joint and passed it around. I had a puff.”

You mean, he inhaled?

Under the plan, the national government will license producers. Distribution and sale will be regulated on the provincial level. (The provinces will also be able to set prices, which might result in some interesting shortages.)

It’s great news for Canada’s budding cannabis industry: “Certainly, there are some companies with more aggressive expansion plans, and this will give some comfort and clarity on what that path forward is going to be,” says analyst Neil Maruoka from Canaccord Genuity.

At a firm called Aurora Cannabis, executive VP Cam Battley is breathing a little easier: On the basis of Trudeau’s promise, Battley’s firm began setting up an 18-acre farm near Edmonton International Airport. “This is something that we planned on and that’s why we started construction on this enormous facility.”

We’ll pause here for some fun with numbers.

Recreational cannabis becomes legal in California on Jan. 1 next year. And it becomes legal in Canada six months later. The changing laws will affect 74 million people — or 21% of the combined U.S. and Canadian population.

Back to the weed-versus-alcohol comparison: Last October, research showed the legal marijuana biz in Colorado was already bigger than that state’s vaunted craft beer industry. (It’s sometimes known as “the Napa Valley of beer.”)

The Marijuana Policy Group found the Centennial State’s cannabis industry generated $2.4 billion in revenue during 2015. Meanwhile, the Colorado Brewers Guild found that craft brewers and brewpubs generated $1.7 billion.

What’s more, Colorado’s tax take from marijuana was three times that of alcohol… and 14% bigger than casino revenue.

But here’s the thing: You don’t have to wait till cannabis becomes legal next year in California and Canada to cash in big. In fact, a significant window for “penny pot stocks” will slam shut tomorrow. If you want the early-mover advantage, we urge you to follow this link for all the details. For reasons you’ll see when you click, this presentation will be taken offline tomorrow night at midnight.

The stock market’s long Obamacare-repeal nightmare is over.

For more than a week, nearly every mainstream headline about the impending failure of Obamacare repeal in Washington was matched by another one about how many days in a row the Dow Jones industrials had fallen. (“The longest streak since 2011!”)

But as we write this morning, the Big Board has tacked on 75 points — back above 20,600. The S&P 500 and Nasdaq are likewise in the green. Assuming nothing untoward happens as the day goes on, the streak will end at eight trading days.

The decline during that time worked out to a not-so-whopping 399 Dow points, or about 1.9%. Over at The Rude Awakening, Greg Guenthner spies some research from Bespoke Investment Group: “Of the 93 Dow losing streaks of seven or more trading days, the current one is only the sixth where the Dow is down less than 2%.” The horror!

Significantly, the hot money flowing back into stocks today is not flowing out of gold: In fact, at last check, the Midas metal has added another couple of bucks; the bid is now $1,256.

The strong-gold story of late has been largely a weak-dollar story. As noted here yesterday, the dollar index is now at a four-month low. “After this month’s drop,” says Greg, “the buck is now in danger of giving back every tick of its post-election rally.

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“Now we’re watching gold rekindle its rally as we approach the end of the trading month. Precious metals are streaking higher as the dollar drops, rising back toward their year-to-date highs… If history is any indication, this rally has plenty of room to run.”

A tight housing market is reflected in the latest Case-Shiller home price index.

The index of 20 metro areas jumped 0.9% in January — that’s three straight increases, the strongest showing in nearly four years.

And the leading cities are the ones that used to be laggards: Chicago is up 1.3% and Washington, D.C., is up 1.0%. Both have been on the upswing for four months.

As long as supply remains tight, no reason the numbers shouldn’t continue to inch up…

Crude has arrested its free fall of late — a barrel of West Texas Intermediate fetches $48.66 as we write — but Russia is bracing for a tumble back toward $40.

Yesterday the Central Bank of Russia delivered a surprise interest rate cut. Its benchmark “one-year repo rate” is now 9.75% — the lowest in more than two years.

To be sure, a stronger ruble of late is a major factor behind that decision… but our friend Chuck Butler at EverBank Global Markets spotted another one: “The Central Bank of Russia has changed its outlook for the price of oil. They now believe it will continue to fall and reach $40, and so the CBR was being proactive in relieving some interest rate pressure for the economy.”

Interesting. Chuck thinks CBR Gov. Elvira Nabiullina is one of the few central bankers on the globe who knows what she’s doing… and our own Jim Rickards agrees. If she’s bracing for lower oil prices — and Russia trades places with Saudi Arabia as the world’s No. 1 producer, depending on the day —  we sit up and take notice here…

As long as we have marijuana on the mind today… we see an unexpected new development in what we thought was just a funny story.

Last week we took note of a federal program researching cannabis as a treatment for veterans suffering post-traumatic stress disorder. For research purposes, the feds grow cannabis on a farm at the University of Mississippi. But the quality of the cannabis is truly schwag-tastic. “It didn’t resemble cannabis,” Arizona-based researcher Sue Sisley told PBS. Some of it was even contaminated with mold.

Now comes word that Johns Hopkins University has dropped out of the study. Several veterans hoping to take part in the research learned the news via a recorded voicemail. “We’re upset with Hopkins,” Sean Kiernan of the Weed for Warriors Project tells Reason. “Something is going on there.”

Whatever that something is, Hopkins won’t say. Perhaps it was the miserable-quality weed? Unfortunately, the National Institute on Drug Abuse holds a monopoly on marijuana for medical research. And clearly NIDA isn’t interested in scoring decent-quality product. That’s government for you…

“Dave, look up the ‘friendly societies’ of the late 1800s,” writes a reader on the topic of health care.

“Wish government was completely out of health care and we could go back to that sort of thing. With today’s technology, it would be better, easier, etc. (I do know there were ‘bad apples’ in some cases).

“Love your work.”

The 5: Believe it or not, there’s a movement afoot for something like that — and the government has seen fit to keep its nose out of it. Watch this space in the coming weeks…

“I find it hard to believe that you would be so naive as to believe the ‘Big Maple Leaf’ that was stolen in Germany would be sold as-is,” begins today’s mailbag.

[That’s only one of a multitude of possibilities. But please, go on…]

“Assuming for a moment it was not an ‘inside’ job (How many alarms failed to go off again? The only ‘clue’ is a mysterious ladder?!), if the thieves had half a brain in their heads, they already had a setup to melt and recast the thing within an hour of stealing it.

“You will know it was an inside job if it is ‘recovered,’ in which case a closer examination (which will never be allowed) would reveal it to be a worthless base metal plated like one of those collectible coins sold on late-night TV.

“Or maybe I’m just cynical, but if so, it is only because the powers that be have put so much effort into earning my cynicism.”

“Thank you to The 5,” writes the reader who stirred up a storm in our mailbag starting last week, “for putting the following words in my mouth: ‘But in the present day and age, people have come to think “insurance” means a free doctor visit for a routine case of the sniffles.’

“This was exactly my point regarding the separation of medical insurance from health care.

“I consider my point regarding the role of government having been made by my critic who said, ‘There are currently far too many middlemen (between a patient and his doctor) with profit motives…’

“For me, government would qualify as ‘the middlemen of all middlemen.’ The only difference is in the case of our lawmakers and regulators — the profit they seek is power!

“On a personal note, my brother has Down syndrome, and I find it difficult to comprehend how my statement ‘Of course, there are those who are high risk through no fault of their own, so as a society we may choose to help defray their extra insurance premium in this instance’ did not show a level of understanding and compassion for those who find themselves in such a position.

“Also, prior to the ACA being enacted, I did purchase medical insurance on the open market having a pre-existing condition (several old injuries from a car accident), so I do know this path personally. As it turned out, the insurer chose not to cover any costs that might arise from the previous injuries and set a premium for the rest of my coverage and we moved forward.

“As noted by The 5, we will not solve this here, but every journey begins with a single step. Love The 5!

Our final correspondent begins by quoting us from yesterday: “Cue the end-of-the-world headlines now that ‘repeal and replace’ is dead”…

And picks it up from there: “… as well as the next round of Trump memes!

“Maybe we can start by recycling the modern classics — you know, like ‘There will be hell toupee’ and ‘We shall overcomb.’ Then we can go from there.

“Hey, as long as the fiasco in D.C. continues rising to new depths, we may as well have a few yuks, right? It’s not like anything important is at stake here.

“The Donald stated on Friday that the ‘best thing we can do, politically speaking, is let Obamacare explode.’ Really? I wonder if he’s considering what the best options are, nonpolitically speaking.

“As always, thanks for the great work you and your team do.”

The 5: Did he commit a Freudian slip?

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. Marijuana is now legal, to one extent or another, in half the states. But what is it that makes certain penny pot stocks leap 10- or 20-fold in a matter of days or weeks?

Our team recently uncovered the “secret logic” behind these extreme moves. We urge you to examine the fruits of their research within the next 36 hours — because that’s how soon it could be before we reach a cannabis “milestone.”


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