This pot grower is now bigger than American Airlines… The DEA just greenlighted cannabis imports… The wrong way to invest in legal pot… In the mailbag: Are we doing the terrorists’ work?
So today, we’re taking a break from uncovering Silicon Valley’s dirty secrets to take a deeper dive into what’s going on… and what it means for your money.
Tilray (TLRY) grows medical cannabis. It’s based in the town of Nanaimo on Vancouver Island in Canada.
In July, it became the first pot grower to list on a U.S. exchange.
And after running up 1,159% since its initial public offering (IPO) in July, it’s not only the world’s most valuable pot stock… it’s also more valuable than the world’s largest airline, American Airlines (AAL).
Colleague Nick Giambruno first spotted the chance to profit from what he calls the “green gold rush” back in June 2017.
He has eight open legal pot stock positions in the model portfolio at our Crisis Investing advisory.
The top performer is up 612%. The average gain is 134%. And according to Nick, those gains are just getting started…
When you consider the medical, recreational, industrial, and therapeutic markets for cannabis together, the implications are clear.
Any one of those is a huge industry. Combined, we’re talking about the emergence of a new global industry that will be larger than the alcohol and tobacco industries… and could be larger than the soft drink industry.
Take Tilray…
There’s good reason to be excited about its prospects.
The company already exports cannabis to Australia, New Zealand, Argentina, Chile, Britain, and Germany.
And this week, the U.S. Drug Enforcement Agency (DEA) approved Tilray’s application to export cannabis to the U.S.
The University of California, San Diego will be using cannabis grown and shipped by Tilray for medical trials on treatments for essential tremor. It’s a neurological disorder that mostly affects older people and causes uncontrollable shaking.
And as Legacy Research cofounder Doug Casey says, there are likely even more exciting medical discoveries to come. Doug…
Cannabis has been proven to have huge medical applications. There are many scores of active compounds in pot other than psychoactive THC. And we haven’t been able to research these for many decades because it’s a Schedule I drug, and illegal at the federal level.
A month ago, Tilray’s market value was less than half as big as the smallest company in the S&P 500.
Today, it’s more valuable than half of the companies in the S&P 500.
And there’s such a frenzy right now, Tilray shares shot up 100% yesterday alone… and trading was halted five times because of volatility.
As value investor Chris Mayer told the rest of the Legacy team yesterday, what’s happening with Tilray right now is “crazy stuff.”
The company has just $28 million in sales over the past 12 months. But investors are valuing the company at $19 billion. Said another way, it’s trading at a price-to-sales (P/S) ratio of 709.
That compares with a P/S ratio of 2.3 for the average S&P 500 stock. And as Chris told us recently, he gets nervous recommending even an outstanding stock to Bonner Private Portfolio readers if it’s trading at a P/S ratio of more than 10. Chris…
You need to have a very good business… that promises to be a very good business for a very long time… to justify a P/S ratio much higher than 10.
To illustrate how hard it is to justify a P/E ratio of 709, consider the following thought experiment.
If you pay 709 times annual sales to own this stock, it would take 709 years for you to earn your initial investment back… and that’s only if management pays you 100% of sales in the form of dividends every year.
To pay you 100% of sales, the company would have to have zero production costs… not pay its workers… pay no taxes… and have zero research and development (R&D) costs.
There’s a big buzz on Wall Street over legal pot stocks all of a sudden. And it’s not all misplaced…
As Nick has been telling his readers for over a year now, he sees the legal pot market outgrowing the markets for alcohol and cigarettes. And right now, you have the chance to get in on the ground floor.
But when valuations get as stretched as they have gotten at Tilray, there’s a ton of downside risk. It’s why you need to do your homework before investing in the legal pot market. Nick again…
There are over 200 publicly traded cannabis companies. Most of them are junk with abysmal financials. But that doesn’t mean there aren’t some gems. You just need to sift through the garbage to find them.
If you’re a paid-up Crisis Investing subscriber, start with Nick’s eight open cannabis recommendations.
Otherwise, there are several cannabis ETFs trading in the U.S. and Canada that track the sector as a whole… and reduce your exposure to any single stock.
Just keep in mind that legal pot is a new market. As a result, legal pot stocks are among the most volatile in the world. So you should only invest with money you can afford to lose.
Recently, we asked you what you’re more worried about – the threat of terrorism or the implications of a U.S. surveillance state.
Here’s one of your fellow readers’ take, from the inside looking out…
I have skin in the game, since I am a Big Data consultant helping companies implement systems to manage their data to solve problems and offer new products. Statistically, the threat from terrorism is very low, as far as we can tell. The NSA, CIA, and FBI don’t publish information about aborted or deterred terrorism events. Those that do occur have killed relatively fewer Americans than auto accidents. 9/11, as horrible as it was, killed about 3,000 Americans, while auto accidents kill about 50,000 every year.
Every time we drive, we risk accidental injury or death. But we see the risk is low, and therefore we drive. The threat from terrorism is astronomically smaller, yet it scares us because we have no way to evaluate it. Thus, we are more likely to allow “experts” to tell us what to do to be safe from that risk. That is an error in judgement, in my opinion, because when we cede others such power over our lives, we give up our freedom of action, especially over an occurrence as likely to affect us as lightning.
Plus, in changing our behavior in anticipation of a terrorism event, we wind up allowing the terrorist to change our lives. We do the work of the terrorist, for that is the goal of the terrorist – to introduce uncertainty and cause us to change our behavior.
To more directly answer your question, my opinion is that the harm of large-scale mass surveillance programs far outweigh the risk of none, and they do not provide greater security from a very small risk. They introduce the potential for being misused by an ill-intended party.
– Robert M.
Have you gotten into pot stocks? Or are you staying away from the industry? Write us at feedback@legacyresearch.com.
Regards,
Chris Lowe
September 20, 2018
Barcelona, Spain
P.S. Next month, Nick will join me in Bermuda for the first annual Legacy Investment Summit. And you can, too…
At the Summit, Nick will share six reasons why President Trump will legalize cannabis… and how you can make life-changing profits. It’s your chance to meet all our gurus at Legacy Research – including Doug Casey, Bill Bonner, Teeka Tiwari, Jeff Clark, and dozens of others.
If that’s not enough, it’s all happening at a beachfront hotel with every amenity at your fingertips… from nine different restaurants to choose from… indoor and outdoor pools… an award-winning, 18-hole par 3 golf course… and much more.
We hope you’ll join us in Bermuda. Get all the details here.