The Commodity Story of 2018: Your Marijuana Questions Answered

Matthew Carr By Matthew Carr
Emerging Trends Strategist, The Oxford Club

Commodities

California rolled out legalized recreational marijuana at the start of 2018, kicking off what will be a historic year for the plant and marijuana investors.

My inbox is flooded with your questions about the marijuana market. Today, I’m answering them.

Many of you seem to be asking about a lot of the same topics… I tried to cover as many as of them as possible.

If there’s something related to pot stocks that you’d like me to cover, feel free to leave a comment in the space below.

Question: Cannabis is still illegal at the federal level. I believe it is still classified as a drug at the same level with heroin. If one invests in a company that has operations in the USA, will that investor be open to prosecution by the IRS or some other government agency?

– G.B.

Answer: It’s true. In the U.S., marijuana is classified as a Schedule I drug, which means the government considers it to be as dangerous as heroin.

However, an investor who owns shares in a cannabis company operating in the U.S. isn’t subject to prosecution by the IRS or any other government agency.

These companies aren’t doing anything illegal either.

For the most part, they operate in the medicinal space, which is legal in more than half of the country.

Medicinal marijuana or medical cannabis is legal in 29 states. There are publicly traded, U.S.-based companies operating in this market. Some are involved in cultivation and others are providing research, while some are developing cannabis-related products and treatments for humans and pets alike.

Cannabis supplements are being researched and used to treat a range of medical conditions, ranging from epilepsy and Alzheimer’s to cancer.

But you’re right: Marijuana is still illegal at the federal level in the United States. This is the biggest risk for those who invest in these companies, as was made clear by the recent anti-cannabis comments from Attorney General Jeff Sessions.

This is why we’ve been more focused on marijuana companies in Canada and other countries – places where the market has federal support.

The global cannabis market is expected to be worth more than $63 billion in a few short years.

So for investors holding shares in publicly traded U.S.-based (or international) cannabis companies, the downside risk isn’t prosecution. The downside risk is a fall in share price and possible delisting if a company violates U.S. federal law – even inadvertently.

Q: Matthew, are you or anyone else at The Oxford Club doing any in-depth work on marijuana as a commodity? I don’t think many people doubt it will be the moneymaker of this year, particularly if the feds decide to shut down cryptocurrency exchanges for record discovery on tax evaders.

But which will be the pot-growing rockets of the year, the pick-and-shovel buys? I hear there’s a small company with no competition doing all the packaging of the medical marijuana that could really take off.

A: Here at Energy & Resources Digest – as well as in our newsletter, Oxford Resource Explorer – we view marijuana as a commodity. We’ve covered it over the last few years.

In fact, I see marijuana as being the fastest-growing global commodity in the years ahead. And we’re already seeing trade routes established, with Canada exporting to Australia and Europe.

As this commodity market has taken hold, there are now definable sectors…

  • Licensed producers and cultivation
  • Agriculture technology, lighting and machinery
  • Biotechnology and biopharmaceuticals
  • Consulting services
  • Media
  • Real estate
  • Products.

And while the marijuana market has shown some robust growth, there are still six times as many cryptocurrencies as there are publicly traded marijuana stocks.

Kush Bottles (OTC: KSHB), a packaging and supply company, is seizing a unique market opportunity. The company is headquartered in California and has facilities in the three largest legal cannabis markets in the U.S. – California, Colorado and Nevada.

Kush serves more than 4,000 dispensaries, growers and producers in North America, South America and Europe. And business is booming.

For fiscal year 2017, full-year revenue grew 129%. For the first quarter of 2018, revenue is expected to be up 243% and up 230% in the second quarter.

First quarter earnings will be released on January 16. Shares are already up about 17% year to date.

QMatthew notes viable cannabis-related companies in Australia, Brazil, Canada, Chile and the European Union. While specific companies have previously been identified for Canada, can Matthew do the same for the other countries and make appropriate evaluations/recommendations for investments? This appears to be a market that is growing and will continue to grow, even with the blip caused by Jeff Sessions.

– J.M.

A: The bigger players have already started to establish themselves.

My favorite marijuana company, Canopy Growth Corp. (OTC: TWMJF; TSX: WEED), is the top international player in the market.

Canopy is currently building a large-scale production facility in Jamaica while it awaits approval to build another one in Denmark. The company has a broad distribution network supplying pharmacies in Germany. In Australia, Canopy is working with AusCann (OTC: ACNNF). The company is also setting up hubs in Brazil and Chile, with the intention to expand elsewhere in Latin America this year.

Aphria (OTC: APHQF; TSX: APH) received its international dealers license in November. The Canadian cannabis oil producer is looking to expand its business into Italy, Germany and Argentina.

The company recently delivered its first medical cannabis oil shipment to Australia’s Medlab Clinical (ASX: MDC). Australia will be one of the markets to watch in 2018. The number of marijuana companies is starting to grow. Many are also trading over the counter. Six Australian companies – AusCann being one of them – are in my personal marijuana stock index of 93 companies.

AusCann shares have already doubled in 2018, in large part because of the start of legal recreational pot sales in California.

Keep Your Marijuana Questions Coming

There are way more questions about marijuana that have hit my inbox… But unfortunately, I’ve run out of space to answer them… for now.

Look for next Monday’s Energy & Resources Digest for more Q&A on marijuana stocks… As I’ve said before, I believe marijuana will be the commodity story of 2018. You won’t want to miss this opportunity.

And please: Keep the questions coming! Leave a comment below.

Good investing,

Matthew