"Prohibition… goes beyond the bounds of reason in that it attempts to control mans' appetite through legislation and makes a crime out of things that are not even crimes… A prohibition law strikes a blow at the very principles upon which our Government was founded."
– Abraham Lincoln
Only Abraham Lincoln can use the words' principles and Government in the same sentence, but who knew he was an advocate for Cannabis reform so long ago! Will Cannabis reform finally become a reality in 2021?
As a Cannabis analyst, this is straightforward. The Republicans want to drop funding for State & Local Government from the American Recovery Act, but the Democrats want Cannabis reform; one helps the other. Suppose the Democrats reduce the State Local funding dollars in their bill in exchange for Cannabis reform? Everybody wins from the economic/social benefits that will accrue to the people, and the states get much-needed tax revenues! Upon legalization, by 2025, Cannabis tax revenues could exceed $100 billion in revenues. It's a WIN-WIN for both sides, but unfortunately, not the likely path.
Back to the Cannabis Macro Grind…
I live in a recreational state and recently went to a neighbors house for dinner. I brought a hostess gift of Sira Naturals Wicked Sour Watermelon Gummies (FYI - due diligence on Best Idea LONG AYRWF). I could have got a nice bottle of Cabernet, but that was boring. According to the Sira Naturals website, "the gummies are a chewy, low-dose candy perfect for novice and veteran cannabis consumers and are infused with premium, full-spectrum cannabis oil. The Sira Naturals are an ideal size, so you can control your dosing and enjoy as many as you'd like!" The perfect hostess gift! Yes, the Wicked Sours were a big hit and a great conversation starter. A majority of Americans favor cannabis reform, and my dinner focus group confirmed that notion.
Cannabis stocks rallied hard yesterday on the news that Majority Leader Chuck Schumer was backing comprehensive cannabis reform. Our in-house thinking is he is getting ahead of his skis. Despite my simple rationale above, it doesn't make sense to immediately tackle cannabis reform when both parties need to address so many other vital issues. Yes, Cannabis reform is on the Democrat's shortlist, but they will probably be spending less political capital on Cannabis until they address more pressing matters. On top of that, the Federal Government is an unadulterated mess. It will come as no surprise to anyone if the Washington folks uncover even more negligence and misconduct in the not too distant future. All the more reason for a few Wicked Sours on a Saturday night!
The pandemic has taught us two important factors about the Cannabis industry; it was deemed essential, and nearly every state is looking to the industry for additional tax revenues and jobs. The social justice needed in the country extends well beyond the industry's borders, but Cannabis reform is also a critical factor in the War on Drugs, including Interstate commerce.
The number of U.S. cannabis industry jobs could reach be over 300,000 people in the U.S. in 2021, looking at 500,000 total employees by 2023. By comparison, roughly 271,000 people currently hold beverage manufacturing jobs, according to the BLS. The industry size is getting to the point that BLS will likely begin tracking Cannabis jobs in 2021. Sales of adult-use and medical marijuana in the U.S. are expected to surpass $18 billion in 2021 sales.
Cannabis is a product consumed by adults across the spectrum. Across class, gender, race, and many companies will have products that speak to all communities that want to participate in the legal consumption of Cannabis. Just one of the many reasons to invest in the industry! The Cannabis industry is too big to fail. It is a significant driver of economic and social change in the U.S., which finds us today, on the doorstep of cannabis reform. This is no longer a question of "if" but "when," and understanding what the new policy will look like is an important consideration. More importantly, are you in the game to make money on this generational opportunity? We are not looking for 20-30% upside in the name we like, but the belief that our Best Idea LONGS in the space can go up to 3-4x from the current prices.
How do you play this generational opportunity:
- You can keep it simple and buy the MSOS (practical but a little boring)
- Own a basket of the industry leaders Curaleaf Holdings, Inc., Green Thumb Industries Inc., Trulieve Cannabis Corp., Cresco Labs, Inc., TerrAscend, and Columbia Care, Inc. Most of these companies have filed S1 and are ready to list on U.S. exchanges when the laws allow.
- Use the Hedgeye Cannabis research team to help navigate the upcoming industry consolidation and pick stocks that have the potential to be an industry leader like AYR Strategies Inc., The Parent Company, Jushi Holdings Inc., Red White & Bloom Brands, Inc., Harvest Health & Recreation, Inc., Planet 13 Holdings, Inc., and 4Front Ventures Corp.
We are here to serve and navigate the changing Cannabis industry to make clients as much money as possible. As KM says, buy on red days! The end of Prohibition is just the beginning of an incredible economic opportunity!
If you would like to learn more about my research team's in-depth investing research please reach out to .
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 1.05-1.16% (bullish)
UST 2yr Yield 0.11-0.15% (neutral)
SPX 3711-3903 (bullish)
RUT 2084-2192 (bullish)
NASDAQ 13,135-13,821 (bullish)
Tech (XLK) 129.40-135.91 (bullish)
Energy (XLE) 38.48-43.74 (bullish)
Utilities (XLU) 61.44-64.11 (bearish)
Gold Miners (GDX) 33.60-36.21 (bearish)
Shanghai Comp 3 (bullish)
Nikkei 275 (bullish)
DAX 131 (bullish)
VIX 17.72-35.80 (bearish)
USD 89.82-91.34 (bearish)
Oil (WTI) 51.43-54.57 (bullish)
Nat Gas 2.45-2.94 (bullish)
Gold 1 (bearish)
Copper 3.50-3.68 (bullish)
Silver 25.17-28.81 (bullish)
Make it a great one…
Howard Penney
Managing Director
Consumables Sector Head
