Interview: The Future of Cannabis Investing

One of my favorite crime movie cliches is when a suspect who’s getting interrogated asks a question and a hard-bitten detective barks: “We ask the questions around here!”

As the editorial director of Investing Daily, I usually ask the questions around here. But not always. My colleague Jim Pearce this week suggested that he turn the tables and interview me for a change.

Jim Pearce is the chief investment strategist of our flagship publication Personal Finance. I can always count on him for incisive thinking. I write about marijuana and ancillary substances for the twice-weekly e-letter you’re reading right now, Marijuana Investing Daily. Jim and his readers also have a keen interest in the profit potential of marijuana. His questions to me are in bold.

On an increasing basis, states and localities have been legalizing marijuana. But pot remains illegal on the federal level. Will the feds ever lift the ban, or is it a lost cause?

The legalization of marijuana on the federal level is only a matter of when, not if. I’m absolutely convinced that it’s inevitable. But investors should be proactive and gain exposure to the right marijuana stocks ahead of the news, because when the feds make their move, pot stocks will spike higher and become far less affordable.

The most likely vehicle for federal legalization is called the Marijuana Opportunity Reinvestment and Expungement (MORE) Act. This bill would federally deschedule cannabis and expunge the records of those with previous marijuana convictions. MORE would impose a 5% tax on cannabis sales, the revenue from which would be reinvested in communities most harmed by the War on Drugs.

MORE also would expedite resentencing for people imprisoned for marijuana offenses, protect immigrants from being denied citizenship because of cannabis, and prevent federal agencies from blocking public benefits or security clearances due to its use. MORE has passed the House and awaits action in the Senate.

What’s one of the most promising segments of the marijuana industry for investment?

I especially like the “pick-and-shovel” plays on the marijuana boom. These companies aren’t necessarily about growing marijuana nor are they developing cannabis-derived drugs. They’re infrastructure stocks that can be wildly profitable.

Marijuana investing can be risky, but you can seek greater safety (and profits) by focusing on the ancillary firms that provide infrastructure services for pot companies in either the recreational or medicinal segments.

Pick-and-shovel plays can be reliable money-makers, because they provide essential value-added services. What’s more, they usually enjoy a diversified roster of clients in several different industries, which buffers them from the inherent volatility of the marijuana business.

Talk briefly about psychedelics. These substances are an emerging investment theme too, correct?

Jim, you and I are both Baby Boomers. When you were in college, did you ever think that you’d be having a serious investment discussion one day about LSD and magic mushrooms?

[Laughing] Certainly not! Life has its ironies.

Yes, indeed it does. It won’t be long before publicly traded marijuana companies start adding branded products predicated on psilocybin (the active ingredient in magic mushrooms), LSD, and other mind-bending drugs, for recreational as well as medicinal purposes.

Psychedelics remain illegal on the federal level but more and more jurisdictions in the country are legalizing them.

An increasing body of research shows that these drugs have medicinal benefits. They can help alleviate depression, post-traumatic stress disorder, and other psychological ailments.

The potential for investors to profit from the increasing respectability of psilocybin and LSD is enormous. Pharmaceutical companies are engaged in a race to develop psychedelics-based treatments. Marijuana companies are making plans to branch out into psychedelics, for medical as well as recreational purposes. A new industry is in the throes of being born. Early investors stand to make fortunes.

Counter-culture guru and psychedelics advocate Dr. Timothy Leary coined the famous phrase: “Turn on, tune in, drop out.” The operable phrase now should be: Turn on, tune in…make money.

Before choosing a pot stock as an investment, what do you look for?

I suggest that readers consult one of my recent primers, 12 Criteria for Picking The Right Pot Stock.

The legalization of cannabis is one of the greatest investment opportunities in a generation. However, when the news is out about an industry’s good fortunes, the rest of the investment herd piles in. Risky and even fraudulent stocks proliferate. Some investors make a fortune; others lose their shirts.

Every portfolio should have exposure to the marijuana industry. The good news is, the investment team at Investing Daily has done the homework for our followers. To learn about our favorite marijuana plays, they should click the link in this article.

Question about investing in marijuana and psychedelics ? Ask John Persinos: mailbag@investingdaily.com.