The Capitalist Investor - Episode 64

Now that we have a blue president and senate, it’s looking like Cannabis will be federally legalized. That means the entire legalization process will be accelerated across the US. We see opportunities opening up in US-based cannabis companies. But are you too late to the game? Or will momentum continue to push things in a positive direction? Listen to hear our take on cannabis stocks, what you could buy, and the future of the industry.

Outline of This Episode

  • [0:25] Cannabis in the stock market
  • [6:08] The US-based cannabis companies
  • [8:32] Stock #1: Green Thumb (GTBIF)
  • [10:26] What the numbers tell us
  • [16:42] Stock #2: Curaleaf (CURLF)
  • [21:58] Stock #3: Turning Point Brands (TPB)
  • [23:20] The ETF options for cannabis stocks
  • [24:08] Are you too late to the party?

Is the opportunity still available in cannabis?

There aren’t a lot of markets where you can still make “easy” money. Cannabis could be an easy money trade. It’s still in its infancy and still has a lot of runway. The floodgates will open. This is where there’s a good opportunity.

Most cannabis companies we talk about trade over-the-counter. They aren’t on the NASDAQ or NYSE—yet. You have fewer potential buyers. We believe as it becomes federally legalized, we will see an uplisting where the OTC companies do become NASDAQ-traded companies.

More money will flow in. Institutional money will pour in. These stocks could double quickly. When US companies are listed on a major exchange, it will drive up the price. So what would we consider investing in?

Stock #1: Green Thumb (GTBIF)

Green Thumb operates in 12 states and has over 50 retail locations. Without approval for more licenses, they can still easily double their retail footprint. We believe they will get more licenses. It’s a great stock to own because they have a pathway to increasing profitability.

They recently raised $100 million. Of that $100 million, 100% was taken by one institution. Imagine the demand there. That’s the power of what institutional money can do. The institutional demand will increase when there’s an uplisting.

Stock #2: Curaleaf (CURLF)

Curaleaf has the biggest footprint in the US, the biggest market cap, and the most revenue. They recently changed the focus of the company to focus on revenue growth—at the expense of profitability. Their margins will be trimmed. After this news, the stock sold off briefly and then rebounded. All investors seem to care about right now is the total addressable market (TAM). That’s how people are investing and trading these days. But it won’t work this way forever.

Stock #3: Turning Point Brands (TBPB)

Turning Point Brands creates the rolling papers. They sell vape pens. They create everything necessary to use cannabis. Everything they do is already federally legal. There’s talk that they may be acquiring a cannabis company. They’re about the smallest of the companies we mentioned, with a cap at around $1 billion and they’re already trading on the NASDAQ. It’s a less-risky cannabis play for someone who might not want to buy an OTC. What are the ETFs available? Listen for some of your other investment options.

What the numbers tell us

survey about marijuana usage found that in 2020, overall sales in the US were $18.3 billion. That’s up 71% from 2019. A lot of it is from newer states getting licensed. Even so, existing customers bought 33% more product in 2020 than in 2019. When the pandemic started, everyone’s orders went up 25–40%. Of over 2,000 people surveyed, 72% said COVID was their reason for buying more. That just shows how much is possible without federal legalization.

One of the biggest things federal legalization could impact is the removal of 208E. Cannabis is still considered a tier-one controlled substance. These businesses are still taxed on revenue (not EBITDA), which is a huge obstacle. Allowing them to operate as a normal business is huge.

As things get federally legalized, there is huge growth potential. There will be increased consumption. These stocks have seen quite the run already. You aren’t too late to the party. Listen to hear what we think a safe portfolio allocation would be.

Resources & People Mentioned

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Show Notes by

Keep Listening to The Capitalist Investor:
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Episode 31:
Handicapping the 2020 Election, Ep #31
Episode 47:
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Episode 63:
Jeff Bezos and Amazon: Past, Present, and Future Ep #63
Episode 79:
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Episode 95:
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Episode 111:
Special Episode – Talking Energy with Daniel Turner, Ep. #111
Episode 127:
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