Marijuana Just Went Mainstream
A little less than a year ago, the cannabis investing community was shocked and amazed to learn that Constellation Brands, the massive company behind Corona, Modelo, and Svedka, bought a 10% stake in Canadian cannabis grower Canopy Growth Corp (NYSE: CGC).
The stake was worth about $191 million at the time. And news of the deal sent shares of Canopy soaring nearly 100% within the month.
Other cannabis stocks saw speculators rush in and drive prices up in the hopes that their picks would be the next to get a massive investment.
But as time passed and no new deals materialized, the industry settled back down, and many of those companies lost all the gains they’d made during the rally.
It’s Happening Again
But last week, the fervor picked back up right where it left off when Constellation announced it had made another investment in Canopy.
And this time, it was a truly massive one. If Constellation exercises all the options it has, it will own more than 50% of Canopy once all is said and done.
That’s around $8.5 billion the beverage maker is betting on legal cannabis.
And investors took note again. Shares of Canopy shot up. So far in August, Canopy is up nearly 80%.
Other growers are getting a lot of attention again, too. Cronos Group (NASDAQ: CRON) is up over 80% this month alone. And Tilray (NASDAQ: TLRY) skyrocketed nearly 140% this month thanks to speculation that it’ll be the next target.
Follow the Leader
The massive moves we’re seeing in Cronos and Tilray, two more Canadian growers, is because other major beverage brands are starting to make moves into the cannabis space as well.
Just this month, Molson Coors announced a partnership with Canadian cannabis grower The Hydropothecary Corporation (OTC: HYYDF).
Shares of HYYDF jumped on the news. They’re up nearly 40% for the month.
But there are still many more major beverage brands out there interested in getting a taste of the growing marijuana market.
Pepsi Co. is looking into partnerships to produce cannabis-derived drinks.
But the biggest news is Diageo (NYSE: DEO). It’s the maker of Gordon’s Gin and Guinness beers.
And it’s courting three companies, currently trying to decide where to make its first cannabis investment.
The issue is that nobody is saying which brands might get the multibillion-dollar nod from Diageo.
And that’s why we’re seeing shares in companies like Cronos and Tilray go haywire.
Speculators are betting millions on those two and several others, hoping for the kind of win early investors in Canopy got from Constellation.
But the thing about that is, when Diageo announces its choice, the profits will already be baked into that company’s share price. And the other companies that speculators drove through the roof are likely to crash back down to earth.
Certain Future, Uncertain Investments
And that brings me to my main point here: Most cannabis investments these days are extremely speculative.
U.S. companies need federal prohibition repealed before they can really grow. Canada hasn’t even opened its market yet, so there’s no way to tell how well it will do.
Another thing many of these companies share is that they’re mostly growers, too.
But that’s a huge issue for me. Growers can only make what people are willing to pay. And if there’s too much cannabis on the market, prices are going to drop drastically.
It’s just like any other commodity.
If there’s more supply than demand, prices fall to find equilibrium.
And we’re seeing something like that in Washington State right now...
The government spent most of its time focusing on regulating the dispensaries. But it let as many growers grow as much cannabis as they wanted to.
Now, dried flower that used to sell for around $50–$60 for an eighth of an ounce is going for $10–$15.
Single grams that used to command a price of $25 are selling for around $5.
Pot is cheap in Washington. That’s great for consumers. But it’s terrible for producers.
It’s pretty much the same thing that happened with oil a few years back. Prices were high, and producers drilled too much.
That oversupplied the market, and prices had to drop to sell off the excess. Hundreds of companies went bankrupt.
Their costs were surpassing their revenues. They couldn’t survive.
You could say that's a little oversimplified as far as what happened in the oil industry. And you'd be right. But, OPEC meddling aside, overproduction was the cause of the massive price drop and bear market that followed.
And that same scenario could easily happen with any growers, even major ones with massive investments from the likes of Constellation, Coors, and Diageo.
So while I’m totally OK with having some speculative positions in these growers, I’m warning folks not to invest their whole nest egg in any of them.
Instead, I’ve uncovered a company that gets paid the same amount no matter how much cannabis sells for.
It’s a company that provides the one resource that’s 100% necessary for producing cannabis.
And its management has guaranteed to pay investors cold, hard cash as long as the company exists.
It’s so safe that I put it in my retirement account. It’s not in there with my speculative plays. It’s in there with the widow and orphan stocks. It’s in there with the investments I’m counting on carrying me through the rest of my life.
It’s the safest investment in the cannabis industry you can possibly find. And it’s practically guaranteed to give you the same kind of gains as all those speculations that might crash and burn.
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You Can Retire on Reefer Royalties
You see, I’ve always been a believer in companies that provide the tools to keep an industry running.
Back during the gold rush in California, some miners struck pay dirt. And some struck out. But the folks who sold them the picks and shovels made money no matter who found gold.
And it’s those kinds of investments that I fill my retirement account with.
Cisco didn’t make the internet. But it made the switches and connections that made it possible. And investors have been well rewarded. Heck, they’re still being well rewarded.
AutoZone doesn’t make cars. It just sells the parts to keep them on the road. And its investors have seen massive gains even while other companies and industries struggled.
This cannabis company doesn’t make cannabis. But it provides the one resource every grower must have. And its investors have already been extremely well rewarded.
In fact, readers who listened to me and invested when I first recommended the company just a few months ago are already up over 100%...
Now, you probably noticed there are two gains on that chart. Well, that’s because one takes into account all that cash the company has been shelling out to investors — the cash I've taken to calling "reefer royalties."
I know that 5% difference doesn’t seem like much now. But with every payment, the gap gets wider. And those payments are going to make this one of the most profitable cannabis investments in the entire market.
The stock is joining in on the brewers’ rally. But it’s still at a reasonable level, unlike the other three cannabis companies I’ve mentioned.
So it makes a perfect investment for anyone still waiting to get in on these massive gains.
Now, usually, it would be me or my partner Briton Ryle telling you all about the company. But our boss, the founder of the company, was so impressed with the investment that he insisted we let him tell everyone about it.
So Brian, Brit, and I put together a presentation with all the information you’ll need to get this investment in your portfolio before the 1,000% gains roll in and before another payment gets sent out.
But don’t delay. The rally has started, but there’s still time to get in on the massive profits to come.
Brit and I will both be here as long as you want to help guide you along the way.
To your wealth (and your future),
After graduating Cum Laude in finance and economics, Jason analyzed complex projects and budgets for the U.S. Army. Then, at Morgan Stanley, he led the assistants' team for the North American repo sales desk, responsible for hundreds of multibillion-dollar trades every day. Jason is the assistant editor for The Wealth Advisory income stock newsletter. He also contributes regularly to Wealth Daily. To learn more about Jason, click here.
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