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Todd Harrison: Cannabis Is the Single Best Investment Theme for the Next Decade -- An Update

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Looking at the space through an investment lens.

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Having just hopped off the phone with the BBC regarding opportunities in the cannabis space, I thought now might be a good time to crystallize my thought process. My assumption is that the interview request germinated from my recent interview on Yahoo Finance, which garnered some attention in the social sphere. 

In the interest of brevity, I'll top-line the vibes below:

  • Since we first started talking about cannabis as my single best idea for the next decade in December 2012, many of those stocks have rallied 500%-1,000%. That's an important context for this discussion, as I'm not a momentum player.
     
  • I've drawn the parallel between cannabis and Y2K -- just as anything "dot com" rose into the tech bubble, anything tangentially related to cannabis has benefitted from the green rush.
     
  • Much like everything that was hoped for and expected of the Internet proved true (though not before a tech crash), a similar scenario may be playing out for cannabis. Sync your time horizon with your investment profile.
     
  • Blind ambition ran these stocks higher, but the business models will need to prove through, and investors should expect a bumpy ride. There will be winners and sinners on an absolute and relative basis, so diversity matters; look up and down the food chain.
     
  • In the Yahoo interview, we spoke of three primary catalysts and one interesting twist: 1) increased tax revenues; 2) lower crime rate; 3) lower prison population; and the twist: When Wall Street banks begin to cover the sector, it will pave the way toward institutional investors. 
     
  • Since that interviewed aired, GW Pharma (NASDAQ:GWPH) was initiated with a Buy at Bank of America (NYSE:BAC) on March 11 with a $93 price target. As Wall Street picks up coverage of "real" companies, institutional ownership will follow the money. A disproportionate number of penny stocks will fail. (Disclosure: I have a small GWPH position as of this post.)
     
  • The social stigma will dilute with time. According to Gallup, 58% of Americans support the legalization of marijuana; 72% under 30 are supportive, while just 29% over 65 support it. As time passes, the legalization mindshare will uptick as the older demo phases out.
When we look back in 10 years (or nine years if we're working off the original thesis), there will be home-run investments that benefit from these secular tailwinds, and the inevitable war stories. Many of the success stories will reside in the supply chain and periphery -- vapor plays and edibles as opposed to the purer plays, which might get cornered by Altria (NYSE:MO), Monsanto (NYSE:MON), and Potash (NYSE:POT).

R.P.

Twitter: @todd_harrison

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