Investing in Cannabis

The Next Great Investment Opportunity

Dan Ahrens

• Publisher: Wiley
• Year: 2020
• ISBN:
  9781119690993
• Edition: 1
• Topic: Personal Development
• Subtopic: Personal Finance

Learn how to get in on the ground floor of the booming cannabis industry with this comprehensive guide

Investing in Cannabis: The Next Great Investment Opportunity examines the rapidly expanding world of cannabis investment. Written by a renowned expert in "vice investing, " Investing in Cannabis takes an in-depth look at all aspects of publicly traded stocks in the cannabis industry for medical or recreational use, including:

• CBD / hemp companies
• Cannabis oil extraction
• Cannabis cultivation / agriculture companies
• Biotech / pharmaceutical companies

This book focuses on the status and history of cannabis legalization plus concrete examples that every day investors can use to make intelligent and informed investments in any sector of the modern, legal cannabis industry. With an emphasis on good lists and data, the author guides readers through the ins and outs of the booming cannabis industry and attempts to distinguish between future breakout success stories and future busts.

Investing in Cannabis is perfect for any person or institutional investor seeking to diversify their portfolio to include investments in this up-and-coming industry.

Chapter 1
Like Investing in Alcohol at the End of Prohibition

“Prohibition has made nothing but trouble.”

—Al Capone

On December 5, 1933, at 3:32 p.m. local time, Utah became the 36th state (the required three-quarters of the 48 states) to ratify the Twenty-First Amendment to the United States Constitution. Prohibition ended. Only 16 years earlier in 1917, the Eighteenth Amendment had been proposed in Congress to establish a ban on the manufacture, transportation, and sale of “intoxication liquors” in the United States. Circumstances made Prohibition a failure, and the Eighteenth Amendment was the first Constitutional amendment in the history of the United States of America to be repealed. The primary reason – money.

The 1920s (the roaring twenties) were a boom time for the US economy. Life was good. Following victory in World War I, the United States was becoming a true world power. New consumer goods spread into households with the advent of mass production, and the modern automobile and airline industries were born. The US financial system was thriving without the legal sale of alcohol. But the Eighteenth Amendment had actually done little to curb the sale and consumption of liquor. It was simply transported and sold illegally. It was done with a wink and a nod among many Americans. The Volstead Act (formally named the National Prohibition Act) was a law that became effective on January 17, 1920, to provide enforcement for the Eighteenth Amendment. It created a special enforcement unit of the Treasury Department (Bureau of Prohibition), and formally began Prohibition. For the wealthier, more powerful, or simply “connected” individuals among American society, drinking came easy. It almost turned into a game of enjoying smuggled alcohol and visiting speakeasies. In another interesting side effect of Prohibition, increasingly strong distilled spirits surged in popularity. The appeal of beer and wine was diminished. Distilled spirits were more profitable to produce, cheaper to transport, and easier to smuggle into the country.

Despite policing efforts of the Treasury Department and other law-enforcement agencies, organized crime reaped the real benefits of the illegal alcohol trade. Organized crime flourished. Organized crime became more organized. With America enjoying good fortune in the twenties, many people weren't concerned with crime – especially crime involving alcohol. Gangsters often became glorified celebrities. Everything was fine until the economy suddenly and violently came crashing down. America's Great Depression began with the Black Thursday stock market crash of October 24, 1929. The Great Depression happened for a host of reasons. The stock market crash followed a period of gross overconfidence and overproduction of goods. A panic in the stock market sparked a panic at the banks. A weak banking system allowed banks to fail and close. Bankruptcies and job losses snowballed.

While the United States was navigating through the Depression, the federal government desperately needed revenue if it were to help set the economy on a correct path and put jobless Americans back to work. Federal income taxes had only been created a few years earlier with the Sixteenth Amendment of 1913. It was a major shift in the federal government's revenue system. Prior to creation of the income tax, alcohol taxes had generated as much as 40% of the federal government budget. With Prohibition, the government had quickly become incredibly dependent on income tax as its primary revenue source. The Depression changed that. Incomes suffered and income taxes suffered. Income tax revenue dropped 60% from 1930 to 1933. The legalization and taxation of alcoholic beverages was an easy target. In the 1932 presidential election, the Governor of New York, Democrat Franklin D. Roosevelt (FDR) campaigned against the financial failures of President Herbert Hoover's administration. The repeal of Prohibition was an important part of Roosevelt's Democratic Party platform. He easily defeated the incumbent Hoover in a landslide victory on Tuesday, November 8, 1932. Just three months later in February of 1933, Congress would propose the Twenty-First Amendment to repeal Prohibition.

The end of Prohibition was a major financial victory for the federal government. Millions of dollars collected in alcohol taxes helped to finance President Roosevelt's New Deal programs in the years that followed. Alcohol helped to financially heal the country as it slowly recovered from the worldwide economic crisis – the most severe in the history of the industrialized world.

Any long-term investor putting money in a diversified group of alcohol stocks near the end of Prohibition would do very, very well. The performance numbers from 1933, or anywhere around that time, up to the present day, are rather remarkable.

Time to Buy

Using US publicly traded stock price data from the well-known and publicly available CRSP (Center for Research in Security Prices) library of Dr. Kenneth French, Tuck School of Business at Dartmouth College, we looked at the exchange-listed securities of the US stock market broken down into 30 industry portfolios. Among a myriad of available data points for stock prices and dividends going back to 1926, the database provides monthly investment returns for each industry grouping. We chose to begin in 1933 – the year that Prohibition was repealed in the United States. We're certainly not the first to study this industry data. Numerous case studies have been completed and articles have been written using various timeframes and methods for crunching the data. The results are the same. From the lows of the Great Depression, alcohol stocks outperformed the other industries and outperformed the general market.

Beer and alcohol total return of $10,000

Source: AdvisorShares, based on data from the CRSP library of Dr. Kenneth French, December 31, 1932, to December 31, 2019

Admittedly – compounded investment performance over a long period of time (like more than 85 years) can cause a very exaggerated graph. The early years of a long-term compound return chart usually look almost flat. The stock pe...

Table of contents

• Cover
• Table of Contents
• A Note to Readers
• Preface
• Acknowledgments
• Chapter 1: Like Investing in Alcohol at the End of Prohibition
• Chapter 2: The Feds, the DEA, and the War on Drugs
• Chapter 3: The Cannabis Investment Opportunity
• Chapter 4: Buy Low, Sell High?
• Chapter 5: The Movement Toward Legality
• Chapter 6: Canada Versus the United States
• Chapter 7: The State of the States
• Chapter 8: The Worldwide Opportunity
• Chapter 9: Canadian Licensed Producers
• Chapter 10: US Multi-state Operators
• Chapter 11: Extraction and Concentrates
• Chapter 12: Hemp and CBD Focused
• Chapter 13: Pharmaceutical and Biotech
• Chapter 14: Suppliers and Everyone Else
• Chapter 15: Mergers and Acquisitions
• Chapter 16: Don't Get Burned
• Appendix I: Portfolio Manager Dan Ahrens' Cannabis Exchange-traded Fund Holdings on June 30, 2020
• Appendix II: Portfolio Manager Dan Ahrens' US Cannabis Exchange-traded Fund Planned Holdings in August 2020
• Appendix III: Constituents of the North American Marijuana Index as of June 30, 2020
• About the Author
• Index
• End User License Agreement