- A link between Jim Cramer and Willie Nelson
- Pot stocks: Where to start looking…
- Plus, a caveat around Aussie cannabis plays
I was feeling pumped yesterday. I got off the phone with a friend of mine, Tim.
He’s a former hedge fund manager who lives in Texas. He’s previously worked with Jim Cramer of Mad Money fame.
Tim’s house is near country singer Willie Nelson’s ranch. That came up because we were talking about the cannabis market.
Tim spends a lot of time covering and trading this sector.
The opportunities are large…
One challenge is knowing where you should start.
There are a lot of angles here. There’s recreational marijuana in Canada and a sprinkling of US states. There’s medicinal marijuana in various stages worldwide.
A growing segment is infusions for food and beverages. A common pitch is for pick-and-shovel ideas like greenhouses and hydroponic equipment.
Potential legacy players in similar industries (tobacco, alcohol) could make a move in some way.
None of these are without risk. Not least the ever present danger of buying hype and inflated expectations.
And yet Tim and I agreed early on a common point: There’s a lot of runway left here for this industry.
If you missed the early surge of marijuana stocks over 2017 and 2018, it’s not too late.
Few industries could grow as fast as this one — literally and figuratively!
A caveat: The Australian government is not helping here.
There’s a vague notion that this is a potential powerful export industry for Australia…but we have extremely tight access for medicinal marijuana for domestic users.
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I heard a touching speech from a nurse recently.
She’s become an advocate for increasing patient access — because so many people reach out to her to get their hands on marijuana illegally.
And for the businesses involved, applications for licences are taking months to get approved.
It is what it is. But it highlights again that international markets should be part of your strategy at times.
There are plenty of marijuana stocks both here and abroad to study and follow.
There’s an abundance of opportunity worldwide…so why limit yourself to just Australia? Take the best of both.
Let me share some thoughts from Tim…
Three cannabis-related ideas for 2019
There are two ways to play this market, generally speaking.
One is to find companies that you think can flourish long term, and buy and hold them.
Tim prefers a shorter, more trading-orientated approach.
That way, you can allocate your capital as efficiently as possible.
You can wait a long time otherwise. Consider the opportunity around medicinal marijuana in America. It’s huge.
But so is the wait time for any cannabis-related company to go through trials to arrive at an FDA-approved product. You could literally wait a decade for that to happen.
Better to surf more immediate waves.
That means hunting for short to medium catalysts and riding the best stocks as they approach.
One example for 2019 is the coming legalisation in Canada of edibles.
In the US, meanwhile, arguably the hottest part of the cannabis sector right now is around CBD — an extract derived from hemp.
Hemp was previously on the US Controlled Substances Act.
Last year, Trump signed a new bill into law that removed hemp from this classification. It’s now regulated as a simple agricultural product.
This allows much greater marketing freedom for companies that sell products such as CBD oils and creams.
Suddenly, the awesome buying power of the US is right there in front of them. The American population is 10 times the size of Canada’s.
Tim likes brand power here. Remember, there’s little scientific evidence that cannabis is helpful as a health remedy.
There’s lots of anecdotal evidence.
The most trusted source any consumer can lean on here is established brands.
I’ve mentioned one before in Profit Watch — Canadian company Charlotte’s Web Holdings. It’s up over 40% since December.
It’s not necessarily a buy today — but certainly a company to start following.
Another idea from Tim is to look for potential takeover targets.
A lot of cannabis companies could look to create a ‘vertical’ structure — from growing to extraction to production and distribution.
Any leading firms in these various links in the chain could get bought out at a hefty premium.
A final idea is to ferret out any cannabis companies that have a foothold in Europe.
It’s possible this region embraces medicinal marijuana faster than the US — thanks to nationalised healthcare systems and a supportive populace.
Europe could become a huge export market for the companies out of Australia and North America.
There’s lots more to talk about here. Stay tuned for more on this.