This year, the partisan attacks have been sharper than ever before in living memory.
Both sides say the other is a danger to democracy. Social media has become a cesspool of tribal bickering. And just about every second of coverage in the mainstream press is of the mudslinging contest between Donald Trump and Joe Biden.
But here at the Cut, we don’t do mainstream. Our mission is to help spot market megatrends early on… so you can profit ahead of the crowd.
And our analysts have been tracking a different kind of vote taking place on November 3.
I (Chris Lowe) am talking about the proposed cannabis legalization initiatives on the ballots in Arizona, Mississippi, Montana, New Jersey, and South Dakota.
As you’ll see today, they could grow the legal cannabis market in the U.S. by 20% – overnight.
So if you already own cannabis stocks, hang on to your hat. This will act as rocket fuel for share prices of the best cannabis companies.
And if you haven’t yet picked up exposure to the legal cannabis megatrend… now is a great time to buy.
It’s all in this chart of the latest state polls…
As you can see, New Jersey voters are expected to approve adult-use (medical and recreational) legalization in a landslide.
About 55% of Arizona voters favor an adult-use legalization bill in their state. And in Montana, there’s a 10-point lead in favor of adult-use legalization.
In South Dakota, a medical legalization bill looks set to pass, while an adult-use legalization bill is neck and neck. And in Mississippi, there’s a roughly 50-50 chance of a medical cannabis initiative passing.
It’s something colleague Teeka Tiwari has been tracking closely at our Palm Beach Venture advisory.
As regular readers know, that’s where Teeka recommends shares in companies before they go public and list on an exchange.
And one of their first recommendations was an early-stage cannabis company.
Here’s Teeka with more on why the election will be good news for the legal cannabis industry…
We’ve been following this space for more than a year now. We know that, once a state legalizes cannabis, it puts pressure on neighboring states to do the same. Otherwise, they miss out on the tax revenue.
South Dakota and Montana would open up the Midwest market. Arizona would continue growing the momentum in the Southwest that Nevada and California started. New Jersey could be the domino to tip even bigger New York over the edge.
The reason these initiatives matter for investors is simple. Teeka again…
As the underlying market for legal cannabis expands, the revenue and profit opportunities for the best companies in the space expand as well.
One of these dominoes falling would be big. If a few fall, it’ll be massive. The addressable U.S. market would grow by about 20% overnight. As each new state falls in line, hundreds of millions in sales opportunities open up.
There’s another reason cannabis stocks are a great bet right now – the COVID-19 pandemic.
As we spotlighted in these pages in April, lawmakers in 28 states where the plant is legal have deemed cannabis businesses “essential”… just like grocery stores.
And sales are booming.
States across the U.S. are seeing monthly sales figures few thought possible.
Take Utah… It launched its medical cannabis program in March. As of the end of August, sales totaled $8 million. Monthly sales now exceed $2 million. This puts the program on pace to generate $25 million in sales on an annual basis.
That may not be eye-popping if you’re familiar with some of the larger states’ sales figures. California, for instance, sold $348 million of cannabis in July alone.
But when you compare that $25 million to the $4 million Utah’s cannabis sales were projected to earn in their first year… it’s clear demand is blowing expectations out of the water.
States such as Illinois, Oregon, Colorado, and Washington have all reported record-high monthly sales over the past few months.
These booming sales should come as no surprise. Cannabis helps folks cope with anxiety and depression. It’s also a stress reliever.
And with a virus on the loose… and the widespread panic it’s unleashed…
There’s plenty to be stressed about in 2020. So rising cannabis sales are natural.
Something similar happened with alcohol sales during the 2007-09 crisis and recession. Take a look…
As the recession hit… folks bought more booze.
This next chart is of the Horizons Marijuana Life Sciences Index ETF (HMLSF). This exchange-traded fund is made up of the 29 largest cannabis stocks. It’s widely considered a stand-in for the legal cannabis sector.
As you can see, it’s down 75% from its peak in March 2019.
But here’s what’s so interesting… cannabis sales are booming.
And that’s a sweet spot for contrarian investors. These stocks are so out of favor with investors, they’re selling at bargain-basement prices.
As Teeka explained in these pages in May…
Last year, a boatload of negative headlines hit the legal cannabis sector. Mainstream investors panicked and sold their stocks… which crushed prices.
But as usual, the mainstream ignored what was going on under the hood. The fundamentals – sales, market share, and profits – are telling a completely different story.
When investor sentiment finally catches up to booming sales, we’ll see a new cycle that’ll take this sector to new highs. Companies trading near their bottoms could soar 5, 10, or even 100 times or more when investor sentiment flips.
Even better, cannabis stocks are set to do well… no matter who’s president next.
He hasn’t said much about cannabis legalization. But when asked, he’s staunchly defended states’ rights to make up their own minds.
And although he made Washington War on Drugs warrior Jeff Sessions his Attorney General… he never backed Sessions’ crusade against cannabis.
Trump signed into law the 2018 Farm Bill. It legalized hemp, a close cousin of cannabis with extremely low levels of THC, one of the main psychoactive ingredients in cannabis.
It might sound bombastic… but Trump may go down as one of the biggest friends of cannabis of all the presidents in history.
His administration is the only one in modern times that didn’t carry out any large-scale raids on legal cannabis businesses.
If Trump wins next week, there’s no reason to expect any change. He’ll continue to stay out of the way of cannabis companies. And he’ll continue to let the states decide.
But what if he loses?
In the 1980s and 1990s, Biden was one of the main proponents of the crime bills that led to locking up millions of people for minor drug offenses.
But he’s shifted with the times.
Today, Biden supports cannabis decriminalization. He’s stopped short of endorsing legalization.
But that hardly matters. The Democratic Party behind Biden is pro-cannabis. If he wins, it’s likely Democrats will also win big in Congress.
And if that happens, it’s only a matter of time before they begin to pass bills making it easier for cannabis companies to operate, and ultimately making cannabis federally legal.
One way to get exposure to the coming upside in cannabis stocks is to buy shares in HMLSF.
It tracks the 29 leading cannabis stocks and will give you broad exposure to the cannabis industry.
But keep your position size small. As Teeka has been showing his readers, the beauty of investing in a young industry like this is you don’t have to risk much to make outsized profits.
Regards,
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Chris Lowe
October 29, 2020
Bray, Ireland