Cannabis / Marijuana, EDITORIAL
History Repeats: Cannabis Investors Would Be Wise to Remember That
By Anthony Wile - October 24, 2015

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.

Posted in Cannabis / Marijuana, EDITORIAL
  • Coyote44

    Very wise comments

    • WoodsWoman

      Completey agree, Coyote. I enjoyed this editorial very much. There’s no doubt this picture will change drastically over time, as new policies get rolled out. In fact, we’ve already seen that happening. I recall John Knapp’s interview last week pointed out examples of changes in Colorado. “Take your time” is a wise admonition for almost everything in life, and most certainly when it comes to spending / investing.

  • TnDoc

    Well said. Recent changes to the medical cannabis laws here in the State of WA are operating to partially recriminalize much of that side of the “business”. IMO, the goal is to drive most users toward the “recreational” system where they can be more heavily taxed and, of course, regulated. The unintended consequence will be to hurt the very patients that the plant most helps. WA State has a schizophrenic view of the field – the mainstream medical system (represented by the Establishment physician guilds through its licensing authority) maintains that “marijuana” (they refuse to use the proper term, cannabis, and in fact rewrote the laws to replace cannabis with marijuana – “reefer Madness” lives!) is not and can never be medicine. To complete the charade, they have turned all control over to the Liquor Control Board (surely the most corrupt regulatory bodies in every state).

    As a physician who worked in the field until the implementation of the new laws, I saw many hundreds of patients – none were there because of “drug seeking” behaviors. All were there because of the failure of our existing health”scare” system. All – ALL – patients were improved by the use of this plant – seizures, PTSD, cancer, IBS, UC, MS, ALS, Alzheimer’s, Parkinson’s, chronic pain, and on and on… Amazing!

    6-7 people die in this country from alcohol abuse every hour. We kill somewhere near 700,000 people a year in our oh-so-sophisticated Medical-Industrial Complex (medical errors – usually related to Big Pharma products, vaccines, and hospitalizations). By contrast, in near 10,000 years no one has died from cannabis use. It has been medicine for Humankind for thousands of years and it is time for the Ruling Psychopathy to get out of the way…

    Greed and control are powerful motivators, however, and the various governmental bodies who have benefited from prohibition will not quietly stand down….

    • WoodsWoman

      This is interesting. Thanks for posting, Doc. I wish more physicians (of all types) could weigh in honestly on this topic, as well as the remarkable results that are being seen with using other currently illegal drugs for healing (MDMA and psilocybin come to mind, especially in the US now, as well as ayahuasca and LSD). Of course, any “good” doc (read, AMA member in good standing) will tell you “that’s all bunk. Heck, even supplements are dangerous!” Yeah, right … and pot will make you go blind! Imagine a world full of Raphael Mechoulams and Lester Grinspoons …

      I do still have hope that over time the Big Pharma model will not apply to cannabis, though they’ll surely try to control as much of it as they can for as long as possible (think synthetic cannabinoids that are already patented, etc.) On the other hand, I have no doubt a Big Tobacco / Alcohol Industry model will grab the industry. BUT, it has been healing people of what ails ’em for millenia, as you point out, and the whole plant (with its “entourage effect”) can’t be patented, as far as I know, so let the madmen in pharmaceuticals patent their synthetics all they wish… Real people will “heal themselves” with real cannabis as they’ve always done, no matter what company provides the product, and real docs will help them where they need help. Big Pharma simply can’t win this time.

      • TnDoc

        I hope this is the case… We shall see!

      • Praetor

        No doubt a big tobacco/alcohol industry will grab the industry. Yes they will, but lets hope its limited for the high timers, those who only want to ‘party’ and get a buzz, yes these people get some ancillary benefit from smoking weed. Its Pharma that will be the bigger problem, these people are no doubt ‘evil’ if you will. Look right now in Washington state the medicinal dispensaries are going out of business and the recreational side is taking over, this is wrong! It will prove what those who oppose legalizing cannabis have said, medical was only a rues so those who wanted to get high could do it legally. High times and Medical should be separate, they are two different issues and should be treated as such. You may win the battle and lose the war, as they say. With government and corporatist involved, this has the potential to turnout bad!!!

  • bouf

    I disagree only with the regional producer angle. Craft beer is getting larger everyday. I would expect the same for cannabis. Variety is a big part of that spice.

    • That depends… craft beers are able to compete on price. How many do you think would be purchased if the cost were substantially higher than the competitive choices?

      However, we tend to agree that there will always be room for regional producers of some sort, size and shape – just not in the dominant revenue sharing way many investors perceive it to be today. One can certainly envision seasonally produced “organic” cannabis flower from various regions of British Columbia in particular.

      • Praetor

        Just try one or two Rogue Nation Ales (Brutal), that is about all you need. I’ll pay the price for this brews, you couldn’t give me two case of Coors or Schlitz, these are hogwash, and over priced, and looking for a headache!!!

      • bouf

        The craft beer I drink is more expensive by 50-75% usually. But it’s that much stronger and takes me twice as long to drink one, so I feel like I’m making out like a bandit. I can assure you that the difference in price between Mexican Ditch and any of the myriad YumYum strains of cannabis is a similar comparison. No one would buy Ditch if that wasn’t the only product available; just the seeds constitute half the weight. Move over BC, Florida is getting it together.

  • Praetor

    Excellent and true. Cannabis will not have the normal trends of a mainstream industry, because its not mainstream in anyway, it will be more unorthodox, the trends that is. The normal parts are production, transportation and sales after that, very unorthodox indeed. The underground market as apposed to the ‘black market’, was built as a cottage industry and our partnerships of trust and respect are built to supply a valuable product to happy customers, the way a market should work. The black market has ‘forgive the pun’ given the cannabis industry a black eye, and that characterization of this industry will take a long time to eliminate, ‘criminality’. The high timers that go to the streets and light their sticks in never ending protest of prohibition, do not realize, they have won the argument, and need to see in your face smoke outs in public is counter productive. After alcohol prohibition, you could imagine no one wished to see people walking, staggering around with a 5th of booze and proclaiming their right to drink in public, I’m sure that behavior got old quick. With cannabis you will have to be a forward looking futurist, because the government will be dictating the future, and the corporatists will be focusing on the bottom line, and there be carpetbagger on their way. The ancillary business will be profitable in this process of bringing cannabis out from underground!!!

  • John Knapp

    Nice point on the barriers to entry. Over the past 6 years in the industry I have seen those barriers grow higher and higher each year and unfortunately even at this still early stage it is very difficult to get in the game. Out of the past 5 applications I have helped to submit in new markets the average total cost has been around $10 million each. When I first began in the industry I started with $10k and a pocket full of hope. Those kind of opportunities are almost non existent at this point unless you have a friend on the inside. Fortunately High Alert has been working on some ways that still allow the average Joe to participate but the window probably won’t be open too much longer.

  • Doski

    Legalization will simply become the “means” to transfer the Wealth currently acquired by the Black-Marketeers to the Political Class via TAXATION. Of course the “Black Market” will diversify and fragment but it too will remain as the “Political Class” , as greedy as they are, will implement Extreme Taxes to acquire maximum Profits.
    In other words . . .the price of marijuana will be preserved by/through Taxation. Instead of Jailing folks for “Smoking Marijuana” they will be jailed for Tax Evasion. If you doubt that you may wish to consider the following Facts . . . Prosecution for a “Drug Related Offence” places the Burden of Proof upon the Govt. Prosecutor, while a “Tax Evasion Charge” places the burden of proof on the Defendant.

    Control MUST Be maintained. Just watch and see !

  • Will participation “in the inevitable roll-up” be a ‘joint’ venture?

  • Myron Goodrum

    Black market…White market…another 2 party system. What about a No market system? What about a 3rd party “Free Market” where we can just grow pot like vegetables and other garden plants…no controls, no governments and no hidden (all powerful one government) agendas.

    The Black party (without Prohibition and its problems) gives us the freedom and the White party gives the governments the tax money (revenues) to continue to enslave us. Another no win situation (for the Free Market) with a regulated and taxed White party.

    Could someone please tell me WHY in the world do we need governments to regulate plants?

    And Anthony, I don’t see how investing in this White party is really helping reduce governments influence?

    I want to starve the bureau rats by reducing revenues to the worlds biggest oppressors, not find ways to sustain them.

    Don’t get me wrong Anthony, I love ya and the work your doing…but I am truly perplexed at the thought of feeding my oppressors with more (tax) money and me with less freedom; even if I’m going to make a killing in the stock market…

    How is my financial winnings in cannabis going to help reduce government? In this case it not…its going to bring BILLIONS into their pockets. That’s the only reason governments around the world are discussing it.

    It looks like government will be the ultimate winners in this trade. I find that hard to live with as a Free Market, less government proponent.

    Do you see what I mean??

    • DB’s philosophy is well known, Myron. But the article is making a real-world point about cannabis investing. As we move forward, we will continue to provide certain wealth-building solutions addressing trends we’ve analyzed. This is one of them.

      • Myron Goodrum

        Yes DB, we stand to make a lot of money on the cannabis trade. But so will our oppressors. In fact for every million we make they stand to make billions!

        To me that does not make for an ethical or moral backed business trade. Funding/supporting government to the tune of BILLIONS/TRILLIONS in new tax dollars so we can make a few millions in stock gains?

        Yes, this is a wealth-building solution. But WHO exactly is the real winner in this transaction? Hands down, its the governments who will allow their subjects the permission to use cannabis with government legislation, regulation, licensing and approval.

        My moral and ethical leanings always question any devices which empower governments over of the people/free market, with such revenue generating windfalls. A new sin tax bonanza!

        Clearly, this cannabis wealth-building trend, is in the favor of government. It gives them new powers to legislate, regulate, license, police and tax. It will save them from another near self-destruct by giving them another source of funds in which to continue their one-world agenda.

        This new win-fall for government will happen no matter how I feel about it. Cannabis investing will create numerous millionaires. It will fill the treasuries of many governments. It will fund new wars, new taxes and new oppression’s on our continuing dwindling freedoms. That is the reality I see. I see no lessening in governments rule over mankind in this cannabis trend. And I see us using our winnings to continue seeking shelter (running) from the state, not it actually freeing us from them.

        • Thanks for your clarification. Indeed, the taxes will feed the government. No way around that. At The Daily Bell has always encouraged people to follow their own “moral compass,” which you have definitely thought through and are following. Good for you. As for a lessening of government’s rule overmankind, do you see that in any trend? Sadly, that would be hard to find.

          • Myron Goodrum

            Yes, sadly…any inkling of a successful trend lessening government or its influence, would be considered a terror operation and droned into obliteration…

            Thank you for the opportunity to vent. I look forward to your readings and making money ideas. M

  • Bruce C.

    Another funny aspect to the “history repeats” theme is that trying to position and maneuver one’s way into the cannabis industry and being very circumspect and pragmatic, etc. is precisely what others have done throughout history in other industries. Trouble is, that’s how “crony capitalism” and “regulations” and corporate “personhood” got developed. The same thing will probably happen with cannabis and some of today’s DB readers may end up being part of “the establishment,” with with all very rational reasons for how it happened. The usual rationalization is “if I don’t do it then somebody else will anyway.”

    I guess the probability being discussed here is that the status quo bumbles along indefinitely (instead of, say, hitting the wall relatively soon and imploding) gradually growing bigger, and so many people will buy cannabis products that the tax revenue will help feed the beast for another day. I guess in that scenario its better to be “rich” than not, but overall that’s not very appealing to me.

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