Nick O’Connor – Capital and Conflict (Great Britain) –
Could this be it? The week we see another milestone in the move towards a more global legal marijuana market?
It could well be.
This week, Canadian president Justin Trudeau’s government is expected to push through legislation that would make pot legal for recreational use by July next year. That’d be the biggest new development since California voted in favour of legalised weed last November (the biggest of scores of other states to so).
Trudeau is a supporter of the idea. So it seems likely we’ll see something happen this week. That’s likely to be good news if you’re invested in pot stocks: legalisation is the first step in a process whereby the market becomes more developed and commercially mature.
It also becomes more highly regulated. I get a reasonably high number of angry or emotional letters when I write about this topic. I understand why. It’s a controversial subject, though as I generally try to point out, I’m not the one pushing for or voting for legalisation, I’m just pointing out the investment implications of a major global story.
But still. There’s a moral dimension to this that exercises some point. Which is why it’s important to point out that with legalisation comes regulation. The whole point of that is to help people who want to use marijuana do so in a safer way, and without the proceeds going to drug dealers. It’s not designed to create a free-for-all. It’s supposed to turn a black market into a real, regulated one that you can invest in.
In that sense, it’s not that different from the prohibition of alcohol in the US. It was illegal. It became legal again. There are plenty of markets that involve products that aren’t necessarily good for us (or are definitely bad for us): alcohol, cigarettes and fast food are all examples that fit. Legalised pot would be somewhere on that list. It’s just going through a process whereby the only way to get it is on a street corner from a stranger, to you being able to buy it from a shop or brand you trust (and is regulated).
Right now the industry – such as it is – is in a kind of half-life period between full legalisation and prohibition. The movement is clearly towards legalisation. But both mind-set and legislation are still stuck in prohibition mode.
(I’m not necessarily talking about Britain here. Though with the global move towards legal weed, I think it could ultimately happen here. Perhaps sooner than anyone thinks. However, I think it’s unlikely the government here will do anything significant that isn’t Brexit related in the next couple of years, so let’s put that idea on ice for now.)
The parallels with prohibition in the US and Canada are apt, by the way. There’s already a strange situation developing. Marijuana is legal in many US states. But it’s illegal on the federal level. In practical terms what that means is a company can sell weed in a state where it’s legal to do so. But it’ll find it hard to get institutional financing, or a stock listing, or even a bank account (in some extreme places). It’s a story of the local vs the federal.
But the market always finds a way around these things. Right now what’s happening is institutional finance is coming from businesses outside of the US – from Canada. Actually, the money is coming from Europe… via Canada… and into firms in the US. It’s a strange setup. But it seems to be working.
And it’s creating opportunity, as Hadley Ford, a former Goldman Sachs investment banker who set up a firm in Canada to help with this kind of financing, put it: “We have a $50 billion playing field all to ourselves, and the prices are ridiculously cheap. You could not have created a better business model for a reformed Goldman Sachs banker to wade into.”
It’s an opportunity that you’ll be familiar with, if you’ve read Eoin Treacy’s “The Green Rush” briefing. He published it a while ago. In simple terms, it’s the case for investing in pot stocks. Eoin lays everything out in simple and compelling terms. And he also shows you how to go about investing to benefit from the story.
In fact, Eoin’s just updated the report. He’s added an extra stock he thinks is a buy for right now. If you haven’t read it yet… or you’ve been sitting on your hands waiting for a good time to make your move… now could be the time.
Goldman backs asteroid mining
Here’s a story you may have missed from last week: Goldman Sachs published a report in support of the concept of asteroid mining.
Perhaps “support” is the wrong word. The term used was “more realistic than perceived”. Or to put it another way: people see it as the stuff of science fiction and dismiss it, but it’s not necessarily thatspeculative.
Why? It comes down to the economics.
If you’re mining something, your business kind of comes down to two things. The first is how much it costs to set up and develop your mine. This can often cost billions. The second is how much gold, silver, platinum, copper or whatever it is you’re mining you can expect to get in return. Simple right?
Well, when it comes to asteroid mining the cost of space travel (essentially your mining setup costs) is extremely high. But it’s falling (while “on-Earth” mining costs are increasing). The figure used by Goldman was $2.6 billion for an asteroid mining craft. That’s a lot. But compared to the amount of money sloshing around the tech world, it’s not prohibitive.
Meanwhile, the amount of material – in most cases platinum – you could expect your asteroid mine to yield is enormous. Again, to use the Goldman figures, one asteroid could have $40 billion-$50 billion worth of platinum on it.
That figure isn’t going to change (the value might, but not the quantity). The cost of going into space on a commercial venture is falling. So perhaps the economics of the idea will stack up, in time.
The problem, of course, is that if you happened to mine $50 billion worth of platinum from space and managed to get it back to Earth, is that you’d immediately flood the market and crash the price. No one has solved that problem yet. But I’m sure someone wanting to raise capital from investors off the back of a “sci-fi lite” pitch that half stacks up could make it all work. Does anyone have Elon’s phone number?
If you like that, you’ll love this
By the way, if asteroid mining, legal pot and other tech stories like them – I’m thinking driverless cars, AI, gene editing and solar tech – are your thing, then I have an invitation for you.
On the afternoon of Monday 15 May I’ve organised our first ever “Tech Symposium”. It’s your chance to come along and see our tech experts present their top tech ideas (right down to the stocks they recommend to capitalise on them).
You’ll hear from Eoin Treacy, Sam Volkering, Andrew Lockley, Akhil Patel, Charlie Morris – and from Dan Denning and me. It’s going to be a great afternoon, although there are only a small number of tickets available.
If you want to come along, you should reserve your seat before it’s too late.
Associate Publisher, Capital & Conflict