As most readers of The Daily Bell are well aware, we at High Alert Investment Management are actively involved in investing in what we believe are the best opportunities for developing significant wealth over the next several years in the global cannabis industry as it continues to whiten.
What I mean by whiten is a transfer from the current black market to the white market. This is indeed an unusual set of circumstances for all investors who are typically speculating on the viability of said products or services being accepted to a large enough degree in the general market place to make an industry sustainable. And, of course, that the company or companies in which they're investing are capable of garnering sufficient market share in such an industry to warrant significant investment success.
The cannabis industry is very different. Certainly, a reflection back to the days of alcohol prohibition in the United States is more than warranted in analyzing why it is so different. Cannabis is widely used around the world in many countries for different reasons: medicinal, adult-use recreational (like alcohol), religious and spiritual purposes, industrial usages and even as a source of food. Cannabis has been utilized for thousands of years. This is undisputable.
In other words, the market already exists. And because of various United Nations and follow-on policies by the member states' governments around the world, it has been subject to prohibition pretty much since the middle part of the last century.
As a result, the market place has been supported by black-market hands. Those black-market hands have reaped enormous amounts of profits that are used for many different purposes, some of which are very detrimental to various countries' stability, social and otherwise.
One such country that has suffered enormously at the hands of black-market participation in the supplying of illegal drugs is Colombia, in South America. This comes as no surprise to anyone who understands the history or has even a vague awareness of what has been happening in that part of the world for decades.
Policymakers everywhere now recognize that the war on drugs, which America has certainly led as its chief prosecutor, has been a total failure. While not everyone would agree that "total" is the right word, for many people it seems to fit – and for me, it fits. And perhaps no other country offers a better example of why I say that. Colombia was utterly devastated by the war on drugs for decades and is only now, in the last decade or so, beginning to really recover.
Prohibition is a failed strategy because human behavior cannot be regulated away. People can be educated, which may change the way they view abuse of drugs – or anything, whether it's coffee, sugar, alcohol, tobacco, cannabis, etc. – but every behavior ultimately comes down to personal choice.
The regulations – the very core of the "war on drugs" – that were put in place to prohibit people from being able to access substances they seek never have and never will work as long as the focus is on the supply side of the equation.
We cannot expect that individuals who decide that they would like to smoke a marijuana cigarette or drink alcohol will not still continue to seek it if the government says it's illegal. The only real outcome of making a substance illegal – and it's a significant outcome, indeed – is the person who chooses to use such substance is forced to buy it from a black market. And a black market brings with it myriad negative factors as compared to a regulated, standardized industry.
For example, because it is a black market, there is no supervisory structure in place whatsoever with respect to the quality of said product the person's acquiring and ingesting. The incidences of blinding and fatalities that occurred as a result of the moonshine industry's "bathtub gin" in the 1930s are a pertinent example.
It's no different with cannabis. I know, having spoken with a former senior official in Canada who ran the RCMP's drug enforcement division, that in some cases their marijuana busts revealed cases of pesticides that were being sprayed on the growing plants to keep bugs off – the same plants that were being ingested and smoked by human beings. The regulations set forth in a white market, as continue to be tweaked in Colorado, for instance, result in a quality more in line with what we would expect when it comes to any product humans intend to ingest.
Simply said, banning cannabis put the entire industry in the hands of the "bad guys."
Thankfully, the world is changing. This week Canada voted for a Liberal government that intends to legalize cannabis. Of course, let's not get carried away. Justin Trudeau intends to tax cannabis and thus pay for his activist social agenda with the proceeds.
Having said that, ending cannabis prohibition is an admirable undertaking, and it puts Canada in good company. A great many countries are discussing ending various forms of cannabis prohibition. This week we also saw Mexico making more noise on the legalization front, Croatia legalized medical marijuana, Australia continues to actively discuss legalization, MPs are debating legalization in the UK …
The entire cannabis transactional environment is transitioning from a black market to a white one. It is certainly an unusual circumstance, made more unusual by the size and potential profitability of the spectrum of marijuana opportunities. One thing's for sure. Governments are not doing this for their health … or yours, even if that is what they say. Like Trudeau, government officials are contemplating legalization because of the tax bonanza they may be able to generate.
In Canada alone, for example, annual revenue from a legalized cannabis market is predicted to be in the ballpark of $10 billion a year. If you're grabbing 30% or 40% of that as a tax, through different layers of taxation, that's a significant amount of money that can be used to support someone's favorite program.
It's going to be frenetic – chaotic – over the next several years as governments around the world try to find the right balance. Too much taxation will reignite elements of the black market that legalization is supposed to reduce or remove.
The upcoming UNGASS conference in April in New York City will add to the frenzy because unlike many such confabs, something relatively significant is expected to emerge: A consensus that drugs generally ought to be decriminalized and that treatment rather than incarceration ought to be the primary approach.
UNGASS was supposed to take place in 2019 but was moved forward to 2016 primarily – it is said – because countries were beginning to establish their own whitening regimes regarding cannabis that would then be harder to roll back if current international conventions that basically outright prohibit the plant – medicinally or recreationally – remained intact.
Earlier in the week we saw Richard Branson leak information about an internal UN document that discussed decriminalization of drugs. While this document was supposedly withdrawn, one can assume that it did its job by alerting the world to the coming effort to promote drug legalization.
Here at High Alert Investment Management, due to our vested business interests in the burgeoning cannabis industry, we have built and maintain an international intelligence network that keeps us informed of what policy considerations are likely to have the support of the UN and related global organizations. It is extremely important decision-making intelligence, to say the least.
The bottom line is this: Cannabis is going to be heavily regulated, standardized and taxed – just like alcohol, only perhaps even more so. However, the industry is going to take time to develop and it will be an international marketplace – meaning, like alcohol, cannabis will be subject to international competition and this is essential if governments want to truly stamp out the black market.
You should not expect draconian protectionist policies in this industry under the guise of "keeping alive" a localized producer marketplace. Nope… only hurts consumers' and governments' coffers. By excluding foreign imports from more competitive low-cost production regions, governments will only be supporting the continuance of a black market by forcing consumers to make a choice to 1) buy overpriced white-market cannabis – primarily due to uncompetitive climatic conditions that drive up local production costs, often associated with environmentally unfriendly indoor growing operations, or 2) continue to acquire cannabis from lower cost black-market sources.
Governments need the tax dollars, plain and simple. The lower the cost of the cannabis products themselves, the more room there is for governments to participate in taxing the industry without jeopardizing the "whitening" process. Force consumers to buy high-cost cannabis rather than have access to quality, reasonably priced cannabis and no one wins.
One thing's for certain: You can bank on the price point to enter and compete in this industry moving higher as regulatory hurdles rise and regulations change – regardless of where in the world the cannabis is being cultivated and processed.. The barrier to entry will finally be so onerous – as a matter of competitive necessity – that only the largest corporate players will be left standing – and a lot of "also-rans" will be relegated to the outside looking in.
Want to discover an early opportunity? Do your due diligence. You will have to find a firm that is situated in the proper climate with strong and appropriate regulatory connections, a reliable funding mechanism and relationships with some of the biggest industry leaders – or those who are positioned to become global leaders. That way, the company has a chance to participate in the inevitable roll-up, becoming part of an even larger enterprise or emerging on its own with international corporate backing.
Stay away from rushing in, for example, to existing Canadian producers who currently have the entire production-distribution-retailing profit chain under their roofs, so to speak. That is not tomorrow's model. Tomorrow's model will have legal barriers separating producers, distributors and retailers. And each of those segments of the market will be taxed. This will leave the current producers' sales projections paling in comparison to what investors are seeing – or being promoted on – today.
Regulatory democracy has its own rules and its own way of unfolding. Most of us haven't seen a business that promises such massive profitability as the whitening cannabis industry. But as investors, speculators or operators, we need to be realistic about its evolution and learn from history.
Do you want to be part of this incredible opportunity? Do you want to invest in it? Be careful. Take your time and look for internationally positioned opportunities. Avoid regionally focused companies – they may not be around as long as you think. Fools rush in.