Marijuana stocks have been on an absolute tear this month. Just this week I closed out 90% and 88% winners in my Marijuana Manifesto newsletter.
But the fun is just getting started...
Last week we brought you Part One of my conversation with Investing After Hours host Alexandra Perry. We discussed how the California recreational market could be a $5 billion industry, and why other states will soon follow suit.
This week, we’re bringing you part two, where Alexandra and I discuss exactly what to look for when investing in a marijuana stock and what sectors are going to lead the next “Green Rush.” If you're a current marijuana stock investor, or have always been curious about how to make a killing on the next big market, you'll learn a lot.
Here we go…
Investment Director, The Marijuana Manifesto
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Alexandra Perry: Do you think the legalization of recreational marijuana will drive more companies into California? Is California killing two birds with one stone by not only gathering the tax revenue for marijuana sales but also enticing companies to come and participate in that space?
Jimmy Mengel: Oh, I think so, and I think California has such a baked in... sorry, it's impossible to talk about marijuana without terrible puns, but California does have that baked in infrastructure where people have been doing this for a long time.
They have the medical marijuana dispensaries, they have large-scale agricultural growers, and I think they just slid right in and said, "Okay, well, we're gonna do this recreationally now." But yes, you're going to see plenty of companies starting up in California just for that reason, and that should continue to spread.
As far as going from state to state, I think that's one of the main things I look for in cannabis companies is that if they have the infrastructure, the idea, the products that are working in one state it should be a plug-and-play thing where you could just take that exact formula and take it to another state, so every time something opens up you have this brand, you have this cachet that you can immediately go into a new state and take over a big portion of the market share there.
And I think a lot of companies are really figuring that out and they don't want to be a one-trick pony just running a small shop in California. They want to have a big, branded, excellent product that they can not only take across the United States but also globally as more global markets open up. Same thing with mail order and that kind of thing, which will be coming down the pike as well. Those are going to be crucial in terms of looking at companies to invest in and whether they can really scale things out.
Alexandra Perry: That brings me to our next question. Because the marijuana market has been doing well — which you clearly know as an investor — and we're still kind of hitting those big events in the space that keep pushing that market upward.
Do you think that California legalization could start a new bull market for the rest of the year? Since this is such a big event, opens such a huge market, gives companies so much more access to customers unlike anything that we've seen before.
Jimmy Mengel: Yeah, I think between California and Canada going full recreational next year, you are going to see a legitimization of the space, and I think that's kind of been what's lacking with the piecemeal legalization in the past when it was like, "Okay, we have Colorado. Okay, we have Oregon."
Those are markets, but to blow it up on such a large scale like California and when we begin to see that money rolling in, I think that is going to put a lot of people in a great position to make a lot of money.
Now, if you followed marijuana stocks you better have a good constitution, because it has been up and it's been down. It's been a wild ride, but I think that with California and Canada that's going to help stabilize that, so you're not going to necessarily see these massive peaks and valleys in terms of stock prices.
You're also not going to see as much fear in the market when something goes a little wrong and then everyone sells off, which has happened a few times over the past few years. No, so I think, that will really help stabilize the entire market, and then it should continue to go up from here for the next decade.
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Alexandra Perry: Do you see any companies right now that you really think will benefit from this legalization?
Jimmy Mengel: Let's go with Nevada for a minute. Now, I've focused most of my investments in Canada, just because it was way safer and more insulated from potential problems. But if you look at the Nevada market, that on July 1st finally started selling recreational marijuana. The demand was so off the charts that the governor had to declare a state of emergency because they ran out of marijuana.
So that goes to show you, "Okay, Nevada's opened up now. What are my plays in Nevada? Because all people do is go to Las Vegas and spend money on any vice you can think of."
One company I recommended to my Marijuana Manifesto readers is operating in Nevada. They have a number of dispensaries in Las Vegas and the surrounding areas in Nevada. They're pretty much an agriculture company but they do have these wonderful storefronts with what they call "budtenders."
So it's not like your silly hippie head shop. You go in there and it's almost like an Apple Store or a fine coffee place. So they're a company, I think, that because they had that early-mover advantage and already were situated in Nevada, and they also have locations in California, I think that they're someone that could do very, very well.
And they also have exposure in New Jersey, which again shows you they're ahead of the curve. So they can't do anything in New Jersey now, but they do have warehouses and infrastructure.
Alexandra Perry: They're ready for it.
Jimmy Mengel: As soon as it happens, then they're gonna be going. So I like to look at companies like that who are clearly ahead of the curve and not, "Okay, California is legalizing it. I'm gonna move to California and start a weed shop." You really need to be forward-thinking and strategically positioning your business.
Another company is actually on the medical side. It's not really as much about the recreational market, but it goes to show you why you need a niche product and something to stand out against all of these other companies that are popping up. It's a medical marijuana company, and they currently have a patent pending for a time-release cannabinol pill.
The medical marijuana industry is much bigger than people give it credit for, and I think could be a lot bigger once more products like this are available, because if you think about taking medicine, for instance, say for chronic pain...
So say you have a medical marijuana card and you're getting marijuana flower from your doctor, you still have to use it. So you go to work, but you've got to sneak down to your car with a pipe or a vape pen to take your medicine. It's not discreet. It's not necessarily healthy to be smoking at all.
So what this company I’ve recommended to my readers has done is created a time-release-type capsule that you would have in any other type of pain medication. Which is interesting, too, because the CEO of the company started the company that created OxyContin, so that's obviously a billon-dollar market now.
They're a fully-integrated medical marijuana and health care company and I think if this patent goes through that could be a huge, huge deal for their company, and again, differentiates them from every other company just selling weed to people.
Alexandra Perry: I imagine, too, it'd be nice to just to have medication that you can take like medication without stigma, because I do think even as the marijuana market evolves and becomes legalized it will take some time for people to overcome lifelong taboos about cannabis.
Jimmy Mengel: Well not just people but doctors. So that's another big problem, too, is a lot of doctors, they don't have the amount of information and clinical trials they need to make a safe decision about prescribing somebody marijuana for their, say, epilepsy or something. What you need is more trials and you need more research.
And I think anecdotally it's been very impressive so far, but until you have products like the one I mentioned, which is a time-release capsule and you can actually titrate and measure what is happening, it's gonna go a long way into turning cannabis into a legitimate medicine that any doctor's willing to prescribe for their patients that won't have horrible side effects, is not addictive, everything that is so wrong with kind of the current pharmaceutical situation.
So yeah, you'll see more and more of that, and as an investor, too, that just opens up way more markets. The pain industry is billions and billions of dollars, so if marijuana can come in there and even make a small dent in that investors will do quite well.
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Alexandra Perry: Do you have any words for us as we leave 2017, which has been a big year for marijuana, and head into a possibly bigger year? For either things that investors should keep an eye out for, things they should be wary for?
Jimmy Mengel: Yeah, I think one thing to keep in mind — and I see this all the time, especially with my reader mail and just watching the space — this still is going to be a fluctuating market. So what often happens is there'll be a slew of news out and all of the marijuana stocks go crazy for a week or two. It happened about a week ago. Almost all of my stocks just went up 50% just based on the teeming hordes finally throwing money at it. I would be wary of buying at the top.
There are awesome opportunities to gain a position in some of these stocks if you just are patient and watch them for a little bit. It's anything from some disappointing earnings or the Jeff Sessions fear articles that come out all the time, and you can just watch all the stocks either go up or down based on that.
I would just do your due diligence and make sure, for one, it's a legitimate company with a unique product of some kind and the money to stay afloat, but also just understand that you don't want to be buying during the frenzies. You really want to just keep a cool head, pick a couple of stocks you really like, and just watch them, because you really have to... You have to really watch these stocks, because they do fluctuate so rapidly. That’s why I started the Marijuana Manifesto in the first place, so investors don’t have to be glued to their computers all day. I send buy and sell alerts and live and breathe this stuff. It makes it a lot less stressful for investors and a heck of a lot easier to make money.
Alexandra Perry: Thank you so much, Jimmy, for coming on to the podcast and taking time.
Jimmy Mengel: Absolutely. I appreciate you having me.
Alexandra Perry: No, it's a pleasure.
If you'd like to get the two picks I mentioned, and get access to the triple-digit gains I've been providing my readers, you can do so here. We are about to enter a new bull market for pot stocks and I really hope you don't miss out.
@mengeled on Twitter
Jimmy is a managing editor for Outsider Club and the investment director of the personal finance advisory, The Crow's Nest, and cannabis stocks advisory, The Marijuana Manifesto. You may also know him as the architect behind the wildly popular finance and investing website Wealth Wire, where he's brought readers the stories behind the mainstream financial news each and every day. For more on Jimmy, check out his editor's page.
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