This is a syndicated repost published with the permission of Money Morning. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.
The opinions expressed are those of Money Morning and the author, not those of the Wall Street Examiner. The Wall Street Examiner makes no representation regarding the accuracy or validity of the ideas expressed in the post. No recommendation or endorsement is intended or implied. This post is presented for informational purposes as representative of one of a range of views on the subject. Do all necessary due diligence before considering any investment.
The world has turned for marijuana, and the genie is out of the bottle, or should we say the smoke is out of the bong. May 2013 was a big month for those who actually inhale.
Colorado Governor John Hickenlooper signed two crucial bills, House Bills 1317 and 1318, stemming from the recent ballot initiative, Amendment 64, legalizing the recreational use of pot in Colorado, which lay out regulations for the sale and taxation of marijuana.
In Seattle, Reuters reports that ex-Microsoft strategist Jamen Shively announced plans to establish the first American pot brand, importing the weed legally from Mexico and retailing it in a chain of medical dispensaries and, where legal, retail outlets.
Shively’s plans have the moral support of former Mexican President Vicente Fox, a conservative. Right now Shively is undertaking a press blitz in Mexico, where he plans to source his marijuana.
Very soon, Nevada could become the 14th state to legalize some form of medical marijuana. Governor Brian Sandoval is expected to sign legislation, SB 374, paving the way for opening medical marijuana dispensaries in the Silver State – up to 40 in Las Vegas alone.
And around the country events have transpired that suggest recreational marijuana may have a bright, lucrative future. The New York Police Department said they intend to de-prioritize pot busts, with pot-related arrests expected to drop a full 20% by the end of 2013.
The NYPD isn’t alone. Police chiefs in big cities throughout the country have stated their preference to at least de-criminalize marijuana or put a lower priority on bot busts and focus on harder drugs. According to a Gallup poll, nationwide support for outright pot legalization has crossed the pivotal 50% threshold. A vigorous, healthy debate is underway across the country.
Marijuana: The Numbers Are Hard To Ignore
As events unfold, a bona fide emerging market in pot is taking shape. And the market is set to be big. The Colorado Futures Center estimates – conservatively – that the taxation regime outlined in the new Colorado marijuana laws could bring in as much as $650 million per year, much of that from a burgeoning new industry, pot tourism.
Colorado is noted for its rather low taxes, but it will be taxing marijuana aggressively and at many points in the production cycle, from grower to retail outlet. For instance, Colorado’s sales tax is a modest 2.9%. Marijuana, however, will be assessed a 15% excise tax, as well as a 15% “special” sales tax – on top of the 2.9% state tax and any local taxes.
According to the Colorado Futures Center study, there’s money to be made in that weed. Adults who choose to indulge can expect to pay around $185 per ounce. The study finds that the market will bear a wholesale cost of about $600 per pound, and retailers can expect a 175% markup.
How to Invest in Marijuana
The new Colorado laws have wired in profits for growers, retailers, and state coffers at every step. They’ve taken a major black-market item, which previously had brought profits for criminals – some of them dangerous – and turned it into a boon for Colorado citizens. Colorado and Washington have staked their claim to part of a $30 billion nationwide trade, and made it legitimate. In the process, they’ve blunted-no pun intended–the effectiveness of foreign drug cartels and domestic drug gangs.
At present, there are some ways you can actually invest in the emerging (legitimate) marijuana market. Most pot stocks, though, tend to be volatile penny stocks and very few are listed on the major exchanges. These stocks trade on the pink sheets, have very high volatility, limited liquidity and small market cap. That’s not to say that they may not be worth taking a look at, but investors need to put the pipe down and think hard about their risk tolerance.
There is one company, GW Pharmaceuticals PLC (LSE:GWP), which is traded on the London Stock Exchange. GW engages in research, with little to no exposure to marijuana retail market. The company researches a range of cannabinoids (the psychoactive chemicals found in marijuana and elsewhere) and is developing a portfolio of cannabis-based medicines. The stock is traded in pound sterling, and has reached as high as £93 ($142) this year. It currently sits at just under £50 ($76).
It is very much an open question as to what legal recreational pot means in the long term, to retailers, consumers, investors, tax collectors, and so on down the line. But there’s every reason to be bullish on the recreational marijuana market. This is good stuff, man.
- Money Morning:
Ending the War on Pot Would Add $20 Billion to the U.S. Economy
- Colorado Futures Center:
Amendment 64 Analysis and Calculator
- Colorado Futures Center:
The Fiscal Impact of Amendment 64 on State Revenues
Ex-Microsoft manager plans to create first U.S. marijuana brand
Majority of Americans Now Support Marijuana Legalization
Join the conversation and have a little fun at Capitalstool.com. If you are a new visitor to the Stool, please register and join in! To post your observations and charts, and snide, but good-natured, comments, click here to register. Be sure to respond to the confirmation email which is sent instantly. If not in your inbox, check your spam filter.