All eyes are on politics this week following the fallout of the 2018 midterm elections.
American voters didn’t offer too many big surprises last Tuesday: Democrats managed to regain the House, while Republicans held the Senate. This was the expected outcome, give or take a few seats on either side.
Overall, the markets have reacted favorably to the results so far, as major indices gained on consecutive days of trading through Thursday. As of this writing, the NASDAQ, S&P 500, and DJI are up 1.2%, 2.2%, and 3.1%, respectively.
With the idea of a “Blue Wave” now in the rearview, Wall Street is breathing a momentary sigh of relief. That’s because Democrats now have no real chance of reversing tax cuts or slowing down deregulatory efforts, both of which have been keeping the bull market moving.
Of course, the American left is not without victory here, as control of the House will pave the way for legislative gridlock and, more importantly, heightened pressure (subpoenas and investigations) against Trump and his allies.
The immediate fallout points to a revival of Russian collusion allegations, which had gradually fallen into the background over the last two years. Most people will be paying attention to the political ramifications of these events, but few will be paying mind to the collateral effects on one specific sector of the market.
Sessions Gets Smoked
Within 24 hours of the election, Attorney General Jeff Sessions submitted a letter of resignation at the request of President Trump.
Nancy Pelosi was quick to label the move a “blatant attempt to undermine” the Russia investigation, which is frankly a fair assessment no matter where you fall on the issue. Trump is either innocent and tired of the witch hunt or guilty and covering his butt.
With Sessions out, Trump is free to fill the Attorney General spot with someone who’s willing to at least limit the scope of or get intel on the Russia probe. Politically, this is all very interesting, but you may be wondering what on earth any of this has to do with stocks or investing. After all, that’s the purpose of this newsletter, not politics.
Well, as I alluded above, there’s a collateral effect of Jeff Sessions getting the boot, and it’s one that’s a bullish signal for pot stocks. With Mr. Good People Don’t Smoke Marijuana now out of the picture, the path to federal legalization is wide open.
Now, the idea of federal legalization stemming from a Republican-controlled Senate might sound unbelievable at first, but keep in mind this is 2018, not 2008.
Last year, a critical shift occurred in the electorate. For the first time in over 50 years, the majority (51%) of Republicans supported legalization of marijuana, according to a late 2017 Gallup poll. That was up from 42% in 2016, highlighting a rapid shift in sentiment towards marijuana amongst the American right.
Trump himself has spoken on several different occasions about ending the war on drugs to take money out of the hands of the drug “czars.”
Trump has also stated we’re losing the war on drugs, and we would have to legalize drugs to win that war.
This was old (pre-election) Trump, mind you, but the fact that the man has expressed openness to legalization in the past is telling enough.
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Why Trump Will Legalize Weed by 2020
With Democrats controlling the House, the Republicans have two choices: find a bipartisan compromise, or sit on a lame duck presidency for the next two years.
From a strategic standpoint, the former option is easily better than the latter, and what would be an easier bipartisan bill than passing federal legalization for marijuana right now?
Just think about it for a moment. If Republicans push for federal legalization, then Democrats can either A) obstruct at the risk of completely betraying their base (72% of Democrats favor legalization) or B) allow the bill to be pushed through Congress and onto Trump’s desk.
For Trump, this is a win-win situation. It either backs the narrative that the man is a highly skilled “deal maker” or makes Democrats look like pure obstructionists. If the Republicans take this route, you can practically guarantee a victory for Trump in 2020.
Now, I know that’s something that some of you probably don’t want to hear, but I’m just calling it like I see it. In July of 2016, I called a Trump win when some outlets were putting him at 5–1 odds, and our readers went bonkers (half positive, half negative). That was my take back then, and this is my take now.
The reality is that I’m not here to pick and choose sides — that’s what the voting booth is for. My job here is to put aside bias and predict outcomes, plain and simple.
What I’m predicting this time is that we see federal legalization of marijuana make its way through Congress by 2020. With that, we will see an irrational, but also highly profitable, surge in marijuana stocks.
Forget Michigan or any other state. Heck, you can even forget Canada, too. We’re talking full-scale legalization of what’s forecasted to become a $146 billion market, right here in the United States.
That all said, I want to point you in the best direction for investing in the explosive marijuana market. There is a swath of misinformation circulating right now pointing investors to risky stocks.
We all like to gamble now and again, but personally, I prefer a sure thing. I’m talking about guaranteed payouts from the guys who lease the facilities to marijuana growers.
It’s tacky, sure, but we call it “reefer royalties” around the office for good fun. The next payout deadline is just a few weeks away, though, so better not to sit on it.
Until next time,