Volatility in stocks is whipping the markets around like a yoyo.
Last week, the Aussie stock market had its best day in two years.
Yesterday, it fell to a 23-month low.
But none of it matters a damn if you happen to be in the hemp business. Because the news for this industry is extremely bullish. More on this below.
A point before we get to it: There’s a danger in obsessing over the daily moves in the indexes.
For example, the ASX 200 is still trading under the high it hit in 2007. There’s been no capital growth in a decade.
But that does not mean stocks were best avoided over the same timeframe. Some wonderful companies have delivered huge returns.
The trick was to find them and back them…and not rely on the index to do the heavy lifting for you.
The way to do that is to find industries that can grow at high rates for a long time. In other words, we’re back to our discussion about secular trends versus the business cycle.
Profit Watch has made the case for one secular trend to be the electrification of transport.
A second one is the flourishing marijuana and hemp industries…
You might be surprised to see hemp mentioned here as well. But this is the way I chose to ride this opportunity for subscribers of Small Cap Alpha this year.
It could be about to pay off, thanks to Donald Trump and the US Congress. But don’t think it’s over. This trend could run for years.
Let me explain…
The recent volatility will grab the headlines. But by doing a bit of homework this year (or subscribing to Small Cap Alpha), you would have known about something in America called the 2018 Farm Bill.
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The US President is very close to signing off on this…and removing hemp (a type of cannabis) from the US Controlled Substances Act.
Hemp doesn’t get you high…but it’s currently regulated as if it does. That’s despite the fact that it’s used in a lot of foods, oils and natural health remedies.
There’s a massive grey area between US state and federal law around hemp and marijuana.
That’s a problem…
Banks and insurance companies have been reluctant to deal with hemp growers and product manufacturers because of the danger of prosecution from the US government.
That puts something of a chokehold on industry growth. The 2018 Farm Bill should take the hand away.
A massive investment shift could happen if this occurs…
A sector that could grow FORTY times its current size
If the 2018 Farm Bill becomes law, hemp will be regulated as a normal agricultural product like soybeans, corn and cotton.
This will make the hemp extract cannabidiol — the basis of so many products — legal at the federal level in the US. That will allow the industry to expand with full marketing power.
Here’s one estimate of how explosive this growth could be over the next four years…
Source: Brightfield Group
This is assuming the 2018 Farm Bill passes. That’s not guaranteed…but we’ll keep you posted.
There are many reasons to be confident. One is the support that hemp is getting from the US states that have traditionally grown tobacco. They now see a future replacing the tobacco crop with hemp.
Tobacco is an important industry in America. Indeed, any history buff will know that the early American colonial economy used tobacco as a currency for a time, thanks to the shortage of coin.
But smoking is falling away in the developed markets. Big Tobacco is a bit like Big Oil…both need a way to reinvent.
We got a taste of this last week when the owner of the Marlboro brand — Altria Group — said it would invest US$1.8 billion in a Canadian marijuana grower.
Altria chose to sidestep the US because marijuana is still illegal at the federal level there.
This is what makes the 2018 Farm Bill so interesting…and potentially profitable.
Big firms like Altria in the US could send a wave of investment into hemp first…while lobbying behind the scenes for the full decriminalisation of marijuana. It’s happening at the US state level anyway.
Certainly, this is the kind of investment trend to back…something so powerful that it can overcome the weakness in the general market. Think about it. In two years, no one will even remember what the index did in December 2018.
But will the hemp and marijuana industries be bigger or smaller?
My bet is bigger.