The Problem with Pot Stocks

Keith Fitz-Gerald Oct 19, 2018
10 

I’ll be right up front.

What I have to say today is going to go against the grain.

You may not think so, but I guarantee there are a bunch of “get rich quick” artists out there who will.

They’re going to tell you I’m wrong, that I don’t understand, that my thinking is limited or – my favorite – that I simply “don’t get it.”

Perhaps they’re right. I can’t deny those kinds of allegations.

That really doesn’t matter to me, though.

It’s making profitable recommendations that concerns me.

And, for me to do that, we have to speak frankly.

Honestly.

That way, you’ll be better armed and better equipped to build the kind of Total Wealth that will last a lifetime, not just a matter of weeks or until the next “hot” money trade comes along.

Get this right… truly grasp what I’m saying about what’s taking place… and you’ll be laughing all the way to the bank while others are crying in their beer or, as the case may be, consumed by the munchies when their hard-earned money goes up in smoke.

Here’s the situation…

Pot stocks are all over the media right now.

Oh… excuse me… cannabis stocks. That’s what they’re apparently called these days.

I find the fact that we have to use euphemisms to somehow make ’em more palatable to be very telling in and of itself, but that’s a story for another time.

Canada made recreational marijuana legal two days ago, on Wednesday, October 17.

That means any consenting adult who wants to have a little “magic lettuce” or “maui wowi” can now buy some from Newfoundland to the Yukon and everywhere in between.

Predictably, investors are falling all over themselves to get in on the action.

Deloitte estimates that the total value of legalized Canadian cannabis will top $22.6 billion when you include growers, testing, security, tourism and – yes – exports.

Most of which will go directly into Wall Street’s pockets, dashing the hopes of millions of investors who fancy making a quick buck.

I’d love to tell you we’ve never seen anything like it before, but that’d be flat out wrong; I wouldn’t be doing my job.

We have.

Twice in the last five years, in fact.

First with gold. Then with cryptocurrencies.

Now, with pot stocks.

I get it. Many investors are simply looking to make a quick buck, so they’re piling into even the most questionable of questionable stocks.

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We’ve seen this playbook so many times it’s painful to write about.

Each new “rush” promises huge wealth but ends in tears for 99% of the folks who jump on board. Tulips in 1637, California’s Gold Rush in 1849, Charles Ponzi in the 1920s, cryptocurrencies in 2017.

So, you want to do it right.

Or, not at all.

Take cryptocurrencies and Bitcoin, in particular.

According to Howmuch.net, just 4.11% of the addresses owned 96.53% of all Bitcoin, as of September 2017. Many people are surprised to learn that’s actually worse than the concentration in derivatives that led to the Global Financial Crisis in 2008 when just five banks accounted for an estimated 95.9% of worldwide exposure.

Which is, of course, exactly what led to the massive run up in 2017, when Bitcoin topped out at $19,343.04 per coin. According to University of Texas professor John Griffin, an expert on market manipulation, and graduate student Amin Shams, at least half of the rise of Bitcoin in 2017 was due to price manipulation.

Today, as I write, a single Bitcoin is worth $6,429.82, which means it’s lost a staggering 66.76% of value it arguably never had in the first place. By comparison, even the tech-laden Nasdaq only dropped 14.4% from the start of 2008 to the end of 2009.

It’s no wonder that many of the same “players” have moved on to pot stocks. The so-called “green rush” is simply tailor made for fleecing the “get rich quick” crowd.

The level of concentration would make a greedy interest rates swaps trader drool!

According to the Financial Post, a single Cayman Islands registered hedge fund called MMCap International Inc. that purchased more than half of all Canadian pot-related securities offered during the first half of this year.

What’s more, MMCap has used every trick in the book – warrants, ownership changes, layered entities – to recycle capital through Canada’s cannabis industry ahead of Wednesday’s legalization. The hedge fund is even reportedly using deals to close short positions and borrowing shares from company insiders during private placements – a tactic that is completely against the law in the United States… but legal in Canada.

In plain English, this means the hedge funds – and MMCap, specifically – are using every dirty trick in the book to limit their losses by shifting the risks onto clueless individual investors. Conversions, warrants, loans… they’re all there.

You could look at the documents associated with each public cannabis-related offering, but it probably wouldn’t do you much good. The same five or six private equity funds are taking down an estimated 50% to 90% of every deal – as opposed to 100% only a few years ago – and their names aren’t anywhere in the public documents because there’s been so much shuffling.

Put another way, these same hedge funds are using some of the most sophisticated financial engineering in the world to drive up prices by creating the impression that the sky is the limit when, in reality, they’re already planning to collapse the market.

Once again, millions of investors will be left holding the bag… or the bong as the case may be.

Thankfully, all is not lost.

The Right Way and the Wrong Way to Play Pot Stocks

Like the Gold Rush you and I have discussed so many times, the real play here is via the companies selling cannabis-related “picks and shovels.”

That’s why, for example, I’ve recommended companies like Scotts Miracle-Gro Co. (NYSE:SMG), which is rapidly becoming the biggest pot-related hydroponic and fertilizer supplier. Or, shares of Constellation Brands Inc. (NYSE:STZ), which took a 38% share in Canopy Growth Corp. (NYSE:CGC) in August, and which has the resources to see this through. Both have very seasoned CEOs at the helm.

They’re the true investments if you have a longer-term perspective and want to make real money down the line, meaning the kind that doesn’t evaporate when the smoke clears.

And, if you really have a burning urge to speculate on short-term gains during the march to marijuana legalization that you just can’t shake?

Then you need to line up with a knowledgeable expert like my colleague Michael Robinson who has spent years studying the emergence of cannabis, and who has a terrific track record picking winners.

Right now, you can sign up for the very first online national event of its kind – the American Cannabis Summit. It’s FREE and you will learn everything you need to know about why full legalization is inevitable. And, of course, how to make the right choices.

Choices that create actual marijuana millionaires.

Former Speaker of the House of Representatives, John Boehner, is even going to be there. It all happens on October 23 at 1 p.m. EST.

Spots are extremely limited, but you can register by clicking here.

Until next time,


Keith

10 Responses to The Problem with Pot Stocks

  1. Robert Gillies says:

    In reference to pot stocks I personally feel that if marijuana becomes completely legal in the US then Big Tobacco will get into the business. I would consider buying a company like Philip Morris. They already pay a good dividend and if they start selling marijuana cigarettes their sales shown increase considerably. I mean who is in a better position to market marijuana than the cigarette companies? I am sure they already have made plans for this.

    • Keith says:

      Hello Robert and thanks for chiming in. I’ve taken the liberty of answering your question in this weekend’s Total Wealth Weekender. Hint… you’re on target!

      Best regards and thanks for being part of the Total Wealth Family, Keith ๐Ÿ™‚

  2. Andre says:

    I love you Keith. You’re just so damn honest. When I sell my first 100 thousand records here in Europe, my first trip I will make is to come and meet you personally at some big event. I read your stuff everyday and I have seen all the people who have praised your research. I would be stupid to go anywhere else. And I am joining your group with the full benefits as soon as I can. Thank you for all you do for us. You really inspire me. Cheers, Andre

    • Keith says:

      Dear Andre,

      Thank you for the kind words. I am truly humbled and will do the very best I can to ensure the trust you place in me is well founded. Please keep me posted and, if you happen to think about it, please send track or two my way. I’d love to hear the music you’re working on.

      Best regards and thanks for being part of the Total Wealth Family, Keith ๐Ÿ™‚

  3. Early mcwhorter says:

    Good news

  4. Rick simovitz says:

    Keith I wholeheartedly agree with you most of the weed stocks will fail itโ€™s hard to measure success in most Lot of hype bottom line feds raising in a world depression spells disaster. I hope Iโ€™m wrong but we are going up in smoke

    • Keith says:

      Hello Rick and I share your sentiment which is why, of course, being cautious may be the profitable play.

      Best regards and thanks for being part of the Total Wealth Family, Keith ๐Ÿ™‚

  5. Buzz Saw says:

    Another way these Jerks manipulate stocks is when they want to buy a specific stock that is priced higher than they want to pay. They can buy half of it at the going price, which drives the price way down and scares many of the regular investors out. Then they buy the rest at bargain basement prices. Grade school tactics from old men who should know better.

    • Keith says:

      Well said, Buzz.

      That’s called a “partial bid” and it’s a key tactic for moving large blocks at favorable prices used by big traders who can’t waltz in and pick up at full offer. You can counter that with a “lowball order” – one of my favorite Total Wealth Tactics.

      Best regards and thanks for being part of the Total Wealth Family, Keith ๐Ÿ™‚

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