Today’s note sets the scene for the most profitable industry in the modern era. And probably the most profitable stockmarket investment opportunity of the next decade.
It all started with 300 dogs, and one pharmacologist, who got the wrong injection. Two died – the dogs, not the pharmacologist who injected them and himself. You can make money as a result.
Don’t worry, there’s no animal cruelty involved. This is about an investment style you can call “Policy Profiteering”. Here’s how it works:
Every government policy has unintended consequences. Those consequences often outweigh the benefit of the policy. But that’s not the point of Policy Profiteering. Instead, this investment approach is about using the predictable unintended consequences of government policy to make money.
The easiest example is smuggling
When governments ban free trade, it creates an entire industry. In Moldova, the cheapest country in Europe according to its own tourism ad, there are huge numbers of Land Rovers all around the border with other countries. That’s because smuggling is big business. If you’re lucky enough to own a flat piece of land on the border, your driveway is paved in gold. Nobody else in the country can afford the snazzy car. Except the politicians and border guards who take their cut too.
So if the Brexit negotiations go bad, you know what to do. Buy a British beach cove on the east coast. And a boat with a dry hold. And send your kids for a career in the Navy or Coast Guard to facilitate the bribes.
Another example of Policy Profiteering is the heavy regulation of medicinal drugs. It costs so much money to bring a drug to market these days that small pharmaceutical companies simply cannot compete. They just aim to be bought out by the big boys. These acquisitions are a big investment opportunity.
A fascinating example is the eurozone itself. Having the same interest rate for Germany and Greece is a terrible idea. It’s either too high or too low for one of the two. That creates an opportunity to invest, and a region to avoid.
In the early 2000s, rates were too low for Greece, causing an artificial boom. These days, rates are too low for Germany, creating the housing bubble that Germany missed out on in the 2000s. I’m making an effort to visit my property-investing German grandmother a lot lately.
But the best Policy Profiteering example from history is alcohol.
Booze stocks of 1933
What if you had invested in American brewers, distillers and vineyards in 1932? That’s one year before Prohibition ended in the US. Companies were giving their inventory away to avoid being caught selling it.
I couldn’t find any listed shares of beverage companies back then. But you can imagine what happened. A very big industry went from the black market to being in reach of everyone overnight. Investors made a lot of money.
The same opportunity presents itself to you again today.
And that is why we are holding an urgent debriefing at 2pm tomorrow.
I’ve set aside a private viewing pass for you to see it.
And just before we air tomorrow, I’ll send it over in an email. Don’t worry if you can’t make the 2pm slot – it will be available for you to view as soon as you can.
It’s a remarkably similar situation. Once again you can buy in before the mad rush and boom begin – before legalisation.
Publisher Nick O’Connor will be joined in our Southwark Investment Research studio by Sam Volkering, who has found three ways for you to play this legalisation opportunity.
This is Policy Profiteering at its most exciting and direct… you have a chance to steal in before a wave of mandates and new laws ignite a government and big industry backed boom.
It only happens once. So be prepared to claim your slice of the new market now, at the point of maximum profit potential.
Now, let me get back to the 300 dogs I mentioned earlier…
The date is 1937. The place is US Congress…
How weed became illegal
The congressional hearings for the Marijuana Tax act of 1937 lasted one hour. Similar hearings on other issues lasted days. But because they were so short in this case, the extraordinary events are easy to summarise.
During the hearings, the Mexican word for cannabis, marihuana, was used to avoid giving away what the drug actually is. American doctors prescribed cannabis and American farmers produced it. Not to mention its sister crop hemp being an important part of US agriculture.
Medical evidence against marijuana was a bit scarce. First a university pharmacologist claimed he had injected the active ingredient of marijuana into the brains of 300 dogs. And himself too, for good measure. Two of the dogs died. Thus, the drug is dangerous, he told the congressmen.
The thing is, the active ingredient in marijuana wasn’t identified or extracted until years later in Holland. Nobody is quite sure just what he injected.
Next up in the hearings was the lawyer for the American Medical Association. He told the hearing that “The American Medical Association knows of no evidence that marijuana is a dangerous drug”.
Doc, go home
The politicians on the panel told him to get stuffed: “Doctor, if you can’t say something good about what we are trying to do, why don’t you go home?” And, “Doctor, if you haven’t got something better to say than that, we are sick of hearing you.”
When the bill made it to a congressional vote, one representative asked what the law was about. Speaker Rayburn told him, “I don’t know. It has something to do with something called marihuana. I think it’s a narcotic of some kind.” The representative asked if the American Medical Association supported the law. A politician who was actually in the original hearings lied, saying that “They supported this bill 100 per cent!”
The bill required cannabis growers to pay taxes and get a licence. But the licences were simply refused when American farmers applied. The hemp crop became entangled in the law too.
The rest, as they say, is history. Over the next 90 years, 20 million Americans went to prison. The war on drugs and the strain on judicial systems around the world are a complete disaster.
In the UK, the story is the same sort of bizarre nonsense. As part of the 1925 Geneva International Convention on Narcotics Control, countries agreed to ban marijuana through the League of Nations. But when the British parliament passed the law locally, there was no mention of marijuana. Just of coco leaves and their role in making cocaine. Even more bizarre, Egypt and Turkey were the ones who pushed for marijuana to be included based on their interpretation of Islamic law.
The point is that the crusade against marijuana has been a shemozzle from the start. But things are changing…
Why marijuana is being legalised all over the world
Marijuana will be legal soon. In fact, the US, Australia, Germany, Spain… one by one, mandate after mandate… it’s happening before our eyes.
The reason is simple. History makes it obvious.
Before the prohibition of alcohol, taxes on the stuff provided the American government with 40% of its revenue! That’s why the teetotallers were big supporters of the newly introduced income tax. They had to figure out a way to replace all the revenue the government would lose from Prohibition.
But in 1933 the Great Depression was raging. Tax revenue plunged. And so Prohibition was repealed to bring back alcohol tax revenue. In other words, it’s about the money.
In January 2017, the state of Colorado made $3.5 million from marijuana taxes. It expects to save around $20 million in court costs.
Take a look around the world. Can you think of any governments in desperate need of revenue?
All of them
This is a rare opportunity to rake in a new (mega) tax stream for governments all over the globe. They are not going to turn that down.
President Donald Trump has recently given the whole industry a huge boost… by committing to lifting the legal threat to states that want to make medical marijuana available.
And post-Brexit, it seems inevitable to me at least, that the UK will step up its interest in this market keenly. Hustling for trade outside of the Union, the legal marijuana market offers British industry a gift it cannot refuse.
In fact, we’re already set up to pounce on legal weed. Did you know that the UK is the largest producer of legal cannabis in the world? Not a lot of people do – this is still an under-the-radar market story, despite its enormous growth. In July the UK medical cannabis bill gets its next reading. Sooner, rather than later, this will be a story sending waves through our markets, too.
Editor, Exponential Investor