iBankCoin
Tokyo based, expat Cape Bretoner. Learning to live in a de-leveraging world. Better suited to the crusades. CFA & FRM charter holder. Disclaimer: @Firehorsecaper reminds investors to always perform their own due diligence on any investment, and to consult their own financial adviser or representative when warranted. Any material provided is intended as general information only, and should not be considered or relied upon as a formal investment recommendation.
Joined Jun 23, 2015
81 Blog Posts

WEED – DUDE, THIS IS LEGIT

There are always warranted concerns when is come to marijuana use, but the people have spoken (58% support decriminalize / legalizing pot, up from 34% in 01′). Overall it is early innings with Colorado and Washington the early movers in November 12′ with retail sales from 14′:

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These numbers are representative of what can be expected from the Canadian market a few years out (C$5bln, US$3.8bln). With that handy 10:1 factor conversion, legal pot could quickly be a US$40bln industry in the US. The DEA peg the illegal trade at $120bln, hence this is not a stretch given the pace of legal adoption evident.

To put this in perspective, coffee is a $48bln industry in the US with Starbuck’s market cap at $82bln (32x P/E multiple).

The legal pot tax haul thus far has been wicked. Colorado charges a 15% excise tax +10% sales tax + municipal taxes for approx. 30% of the final product costs in taxes for the state coffers. Washington as of 7/1/15 charges a 37% excise tax + state and local. There are many details to sort in this type of endeavour as one can imagine. The age limit is a critical one and both states have a 21+ cutoff.

From a “pick your poison” perspective authorities might favour potential switching from alcohol to wacky tobacky, and there is some of that noted but typically these vices are not mutually exclusive. Opioid painkillers cause more overdoses than heroin & cocaine combined at present. Opiates are a significantly more harmful category of drug versus marijuana than implied by the graph below.

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Those who do not remember the past are condemned to repeat it. The British introduced opium as a recreational drug to China is 1825 (China had used it for medicinal purposes since the 7th century) in an effort to balance their trade numbers with China (silk tea and porcelain out versus British gold and silver in prior). The two Opium Wars of the 1800’s were largely credited with the downfall of Imperial China.

Cannabis (% regular usage); Iceland 18.3, USA 14.8, NZ 14.6, Nigeria 14.3, Canada 12.2, Bermuda 10.9 and Australia 10.3.

Finding a way to invest at this juncture is challenging. GWPH has a market cap of $1.6bln and sits at about the mid-point of its 52 week range at $72.68. Many university educated baristas will be tempted by the $100k per year top cannabis jobs, but the $12/hr dispensary roles are much more plentiful. Snoop Dogg has signed with Ontario’s Tweed which hopes to be the Tim Horton’s of weed for Canada.

Prime Minister Justin Trudeau has promised to legalize, tax and regulate the marijuana trade. I would not fade the man.

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For the producers of prime marijuana, the skies are very blue indeed. Premium labels sell for as much as $430 per ounce. One blunt of a varietal called Afghani Bullrider costs $150/per.

I gave brief consideration to wasabi at $100/kg, but a change in tact may be called for. Wasabi is notoriously difficult to grow with New Zealand and Oregon, US the only non Japan markets to get traction thus far. IF I get the required approvals for the tract of remote land in the neckbones of the Appalachians, keep an eye out for the ticker symbol OMG. JCG

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3 comments

  1. ibanknothing

    Great post. One caveat for the US is if Trump makes it to the big seat, some think Chris Christie could become the attorney general. He’s said he’ll enforce federal pot laws over states’. It’ll be deja-vu all over again.

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  2. firehorsecaper

    I have a lot of time for CC, but he needs a hemp band to keep him off the M&M’s to make it to 60. Less crowded prisons will be a big plus, police freed up to fight crimes with real victims. I think he will get there. Christie presides over NJ towns that need a change. Trenton “Trenton Makes and the World Takes”, Camden, and Newark, NJ all come to mind.

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