My dive light lit up the particles in the water like snowflakes in headlights. I was diving the pitch-black waters of a north Florida river.
All sunlight disappeared within 10 feet of the surface. The next 25 feet of the descent was a disorienting fall into darkness.
I landed on the bottom and breathed a sigh of relief. The bubbles found their way to the surface through the darkness.
This river is a portal into the past. My light landed on the butt of a bottle stuck in the river bottom.
Pulling the bottle from the muck, I made out a text stamped into the neck. It read: “Federal Law Forbids Sale or Reuse of this Bottle.” Liquor bottles from 1932 to 1964 bore this label.
The label was part of a strict permitting process. The idea was to deter bootleggers and others trying to dodge federal taxes on alcohol. Illegal alcohol sold at a steep discount to the legalized, and heavily taxed, variety.
We are struggling with the same issues in the marijuana market today.
One of the appeals for legalizing marijuana is that it will cut off a major source of funding for criminal syndicates.
But they aren’t giving up market share without a fight.
Black-Market Weed Made up 80% of Sales
Before you go on, click the image below to watch my most recent marijuana market update.
According to Statistics Canada, buyers spent CA$4.72 billion on black-market marijuana during the first quarter of legalization. That’s 80% of the total CA$5.9 billion Canadians spent on pot during the first quarter overall.
While investors fret over the slow death of the black market, it’s not something we should worry about.
U.S. agents continued their fight against bootleggers long after Prohibition ended.
And just like bootlegged liquor, black-market marijuana sells at a discount to legal bud. The lack of taxes and compliance with safety standards make it cheaper to produce.
But the shift away from black-market pot will happen even faster than with liquor. That’s because the way people consume marijuana is changing.
The black market is struggling to stay up to date with new manufacturing technology. And the growing popularity of vape pens and infused edibles makes it more challenging to keep up.
And in the next year, we will see huge growth in the infused drinks market. Major alcohol brands such as Constellation Brands Inc. and Molson Coors Brewing Co. are betting big on drinking being the next big wave of marijuana use.
For investors who worry about the black market eating into sales — don’t.
Take Advantage of the Dip With HMMJ
Now is a great time to invest in the marijuana sector. The sell-off in stocks created a great buying opportunity in cannabis stocks.
Pot companies aren’t directly affected by the trade war. But it is a high-growth sector, which means higher risk. In May, the global cannabis producer index fell 13%.
When fear strikes the markets, higher-risk assets are the hardest hit. Investors looking for growth flock to safe-haven assets to shield their gains.
That gives investors with a longer-term view an excellent buying opportunity. We can buy the same great companies at discounted prices.
Consider an exchange-traded fund (ETF) for exposure to this growing sector. The Horizons Marijuana Life Sciences Index ETF (Toronto: HMMJ) is a great way to take advantage of the dip in prices. This is a basket of major pot companies. And they produce both medical and recreational products.
Good investing,
Anthony Planas,
Internal Analyst, Banyan Hill Publishing
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