Capitalize on Cannabis
I wrote about what I have been thinking about just five days ago. I shared a video, which was my first in almost a year for the public. I was giving weekly updates, but it seemed to be a waste of time then. I do a lot of videos still for my subscribers at 420 Investor!
This has been a very tough time for cannabis investors since the market peaked in early 2021. I was quite nervous at that peak, as prices had spiked. I never would have guessed how far the market would fall or for how long it would be under pressure. Here is a chart of the New Cannabis Ventures Global Cannabis Stock Index over the past 5 years:
I am not ready to say that we are in a new bull market, but we may be! It's been 3 1/2 years, and prices, while up now in 2024 by 11.7%, are down over 90% since February 2021. The market had shot up on hope that federal moves towards legalization would take place and strong cannabis consumption after the pandemic hit.
I have been cautious for a while but have been expressing more optimism recently. Why? Well, there are a lot of reasons, but the core reason is that we appear to be headed to rescheduling cannabis. It's been a long process that began when President Biden declared in late 2022 that he was moving in this direction. In late 2022, I shared my views about the cannabis market with readers at New Cannabis Ventures, discussing how two key catalysts might help prices: rescheduling and uplisting.
At that time, the world didn't expect rescheduling, which could wipe out 280E taxation. 280E forces American state-legal cannabis producers and sellers to pay taxes on gross profits rather than net profits, which weighs on cash flows and income for these companies. Almost a year ago, news hit that the Department of Health & Human Services had recommended to the DEA that it move from Schedule 1 to Schedule 3, and stocks shot higher at the time. I saw the promise, but I also recognized that it was not a done deal yet. Well, on April 30th, the DEA announced that it was doing exactly that. Stock prices soared on this news, but it wasn't a done deal yet. This year-to-date chart shows the sharp pullback:
The sector is up in 2024 after dropping in 2023 (and 2022 and 2021), but it is down 22.7% since April 30th.
I have been closely following the cannabis sector since early 2013, which was right after Colorado and Washington voters approved making their states legal for adult-use consumption. The first state to offer cannabis to people in the state was Colorado, beginning 1/1/2014. There are now dozens of states that do so, but cannabis remains illegal federally.
The potential federal rescheduling has the huge benefit of wiping out the onerous tax, 280E, and it may encourage more research. That's really all that we know for now. The access to banks and credit card processors is not high, and it may not change.
I learned many years ago that cannabis investors should not count on the government to help with their investments in the sector. I have never expected that cannabis would be legalized soon, and I don't think that is necessary for investors to make a lot of money buying cannabis stocks. With low prices and greater odds of 280E taxation going away, I have gotten a lot more bullish on the cannabis sector.
I started 420 Investor 11 years ago, and I moved it to Seeking Alpha in late 2022. I am very happy with the move! I run two services there, the full service as well as a sub-service, The Big Picture. The Big Picture costs a lot less than the full service, though it offers a lot less too! I understand, though, that it is just right for many folks. Subscribers to The Big Picture get my monthly newsletter as well as a weekly update. That monthly newsletter is in its 11th year of publication. Here is the August edition that I published on 7/31:
My newsletter is awesome, but perhaps the best feature of The Big Picture is access to my Top Picks. I have seven that are open currently, and here are the ones that I have closed since launching earlier this year:
I have offered model portfolios for many years, and I have traditionally done very well relative to the index. That is the goal: Go up more than the overall market or down less. Subscribers to my full service have access to my very actively traded model portfolio Beat the Global Cannabis Stock Index. What a week! That model portfolio surged 21.9% last week, thanks to a few soaring stocks. It's about time! That model portfolio is up 38.4% in 2024 so far and is now up over 17% since the end of 2022. The Global Cannabis Stock Index has gained 11.7% in 2024 and is down 6.0% since the end of 2022. I am doing my job!
For those who want to learn more about investing in the cannabis sector, 420 Investor and The Big Picture are good options, but they do cost money. I share ideas in other places as well, and these are free to readers.
I started New Cannabis Ventures in 2015 and have been writing a weekly newsletter for a very long time now. Each week, I try to share my thinking. You can access them and see.
While I do share some picks and pans in that newsletter, it's often more big-picture thinking. I do write each week an article about a cannabis stock for investors that I share at Seeking Alpha. I believe that these are free, but there are limits on how many free articles readers can access. Seeking Alpha offers a premium service that is quite affordable that lets subscribers access all of the articles.
Cannabis stocks may be about to rally, and this excites me! I am aware that the DEA may not finalize its rescheduling of cannabis, and this would be detrimental to some companies and hurtful to a lot of them, but the crowd isn't exactly in yet. I am finding some names that offer limited downside and substantial upside in my view. This is a time to capitalize on cannabis!!!
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