Harry Humburg – Exponential Investor (United Kingdom) –
There’s a lot of money in American football.
More than in any other pro sport in the world.
In 2016 the National Football League (NFL) made $13 billion.
That’s more than the UK, German, Spanish Italian and French football (or soccer, as the Americans would say) leagues combined.
When you think of places with a lot of money flowing into them, the NFL is certainly one.
So I was pretty surprised on Tuesday to learn the legal cannabis market is set to overtake it.
Legal cannabis is already worth $8bn a year and it’s on track to triple by 2021.
Imagine if someone had told you two years ago that within the next five years cannabis would not only be legal, but it would also be worth more than the NFL.
The above information comes from an article Reuters posted last week.
The crux of the story was that the opportunity in cannabis is so big, even people working for Google and Apple are quitting their jobs to get a piece of it.
And it’s true, cannabis is a huge investment opportunity. In fact, next week Eoin Treacy has a very smart play on the industry to share with you. Just in time to capitalise on California’s legalisation in January.
But the most interesting part of that Reuters story, to me, was a statement I found in its comment thread.
What to do when your money’s no good
Because cannabis is still illegal at a federal level, the shops selling it can’t put their takings into banks. They have to deal with cash, huge amounts of it.
Here’s the thread:
Looking into it a bit more, I found the Los Angeles Times had reported on this strange situation in January. It interviewed a woman called Julia Gosnell who had started a cannabis packaging company.
Here’s the most important part of the piece:
Gosnell and Radestock project they could gross about $3 million a year. Like most cannabis entrepreneurs, even ones who don’t actually touch pot, their clients will pay them in cash. They will probably not be able to find a bank to take it.
Imagine having to be paid in cash, having to pay your employees and suppliers in cash, having to take care of your payroll, sales and income taxes in cash.
‘I was told by an accountant, who closed his door to tell me this, that you just keep your cash under the mattress,’ Gosnell said. ‘Stash it somewhere and find a way to get a big deposit into your account. I said that doesn’t sound legal, but I am told everyone operates this way.’
So where is all the money going, besides on the private security paid to protect it?
Well, according to that same thread, it’s going into property:
Of course those comments are just written by a random people on the internet. So take what they say with a grain of salt.
But if these shops really are buying property to cash out their profits, it’ll be interesting to see what happens to California house prices when cannabis is legalised on 1 January.
Where is cannabis cash really going?
However, given I work with Eoin, who is an expert on the legal cannabis industry, I thought I’d get his take on what’s going on. And if he thought any cannabis money was flowing into bitcoin.
Here was his response:
“What I see from the trust business is that there are banks willing to take the pot cash but they are local banks and therefore small. The cash is blowing out their deposit ratios so they are trying to lay it off into trusts so it can be invested in the market.
“I don’t doubt that some is making its way into bitcoin but they can’t take payment in crypto and it needs to be banked to effect an electronic transfer. They do not have POS machines.”
So it appears the situation hasn’t moved on that much since January. Cannabis shops are still struggling to cash all their cash. As Eoin said, some of the money is making its way into banks, but most isn’t.
I also thought I’d ask Sam Volkering for his take. He simply replied with one word: PotCoin.
As a cryptocurrency obsessive, it wasn’t the first time I’d seen PotCoin mentioned. But I’d always thought it was set up as a joke. I never bothered to actually look into it until Sam replied.
It turns out PotCoin was created solely to solve the cannabis cash problem.
From its website:
PotCoin provides the underserved legal marijuana industry with a decentralised banking infrastructure and payment solution. Using PotCoins, industry members will realize significant cost savings, scalability, and unparalleled enterprise security.
And it’s been doing rather well out of it:
PotCoin is up 1,975% this year
Source: coinmarketcap.comPotCoin has a market cap of over $70 million. But this is actually pretty small compared to total value of the legal cannabis industry.
Of course, if you’re going to the trouble of turning your cannabis profits into crypto, it does beg the question of why not just use bitcoin?
But then the same could be said of the myriad other payment coins out there. And PotCoin is based on a faster and more efficient code than bitcoin. So I suppose it does make some sense.
Whether it’s a good investment or not, I’ll leave you to research for yourself.
PotCoin pays Dennis Rodman to invade North Korea
But PotCoin certainly is an interesting crypto. And it’s gathered quite the celebrity following. Again, though, I don’t know if that’s a good sign or a warning flag.
This summer, in a stunt I still can’t get my around, PotCoin paid for Dennis Rodman to visit North Korea.
Yeah, probably more of a warning flag on this one.
Now, if you’re interested in a smart way to invest in the legal cannabis market, keep an eye out next week for an email from Eoin Treacy.
He has discovered a great opportunity to capitalise on California’s cannabis legalisation on 1 January. I can’t say too much about it right now, but it should be worth the wait.