In this week’s member Q&A, we take a look at trade wars, FDA regulations, and Latin American cannabis production. Take a look…
The markets are continuing to misbehave on bad news about the trade wars, and I understand that’s creating a lot of anxiety for many of our members.
Several of you have written in with questions about the current downturn, and I’m happy to take the time today to address some of them in this week’s member Q&A.
Our first question comes from Mike, who isn’t sure what to do with his current cannabis stocks.
Mike L. asks: “How will the trade war affect cannabis stocks? I don’t know whether to hold or sell them. Got hit hard last 2 weeks.”
Hello, Mike. I’ve written a lot about this, but it’s so important that I never want to miss a chance to repeat the message. The trade war is a threat to the global economy, and therefore to stocks. And in an uncertain market, the riskiest stocks tend to sell off the most, and investors still consider cannabis a risky sector. That means that the trade war will hurt cannabis stocks even though few of the companies will actually be affected by it.
This is ironic. In the future, when cannabis is fully legal in the U.S. and it is being sold freely in most states, investors will consider cannabis one of the recession-resistant sectors, like food or alcohol or personal care products. They will go down less than other stocks because investors will know that demand doesn’t change much in a recession. Unfortunately, we’re not in that future quite yet.
As I wrote to our fellow members this week, the best way to play this is to use the downturn to add to your cannabis stock holdings – maybe just a little each week. Then, when the trade tremors finally end, we can expect these stocks to rocket back up like they did in January.
Our next question comes from a member who wants to know if something else is negatively affecting cannabis stocks.
Michael L. says: “I was just wondering. I read that the FDA won’t allow CBD added to food or drinks. Do you think that will change and is that why we are seeing the downturn on marijuana stocks?”
Michael, you’ve identified one of the key issues in cannabis today. It’s true that right now the FDA officially does not allow CBD in food or drinks. If you go to the store, however, you’ll see that the FDA is not enforcing that rule unless a company makes shady health claims on its label. In fact, I bought a CBD candy bar at a large, reputable grocery chain this weekend.
Late last week, the FDA held hearings on CBD in food products. You can read my report on that meeting right here. The short version is that I think the FDA will end up allowing CBD in food products, though dosing may be limited in some cases and some specific foods may be excluded.
There were some cautionary comments at the meeting, but I don’t think that was behind the downturn in cannabis stocks – companies with no CBD exposure at all, Canadian companies, international companies – all were down. I think the thing dragging the market down is that trade war and associated economic jitters that I wrote about above.
As I told members of The Cannabis IPO Insider earlier this week, perseverance is what will make you a great investor. The ability to weather this storm today is going to make our sunny days much sunnier in the not-so-distant future.
Speaking of sunshine in the future, our final question today considers cannabis production to the south.
Charles L. writes: “Greg, it is much cheaper to grow pot in Colombia. How is this going to affect US and Canadian pot companies?”
Charles, great question. The answer is that in the short run, Colombia and other Latin American growers will have little effect on U.S. and Canadian companies, but in the long run Colombian cannabis will displace much of the commodity-grade cannabis currently being grown in Canada and the U.S., but the U.S. and Canadian companies will not be hurt by it – they will benefit.
Right now, no cannabis can legally be imported to or exported from the U.S., and few foreign companies trade with Canadian cannabis businesses. And that situation will persist for quite some time. So U.S. and Canadian growers are not affected by Colombian cannabis. The business plans of the companies down there (there is a Colombian grower in the Cannabis IPO Insider model portfolio – you can click here to gain access) look to Latin America and to Europe, and more specifically to medical-grade cannabis oils.
By the time there are meaningful imports from Colombia to the U.S. and Canada, the big producers will have earned back the capital they spent on grow houses many times, and frankly they’ll be happy not to have to grow so much cannabis on their own. After all, Budweiser doesn’t grow its own barley and rice, and most winemakers don’t even grow their own grapes!
Production in the U.S. and Canada will transition over to highly specialized and high-priced strains grown indoor and in a few regions where cannabis happens to grow well, like Humboldt County and a few valleys in British Columbia. Meanwhile, the lower price of cannabis will help the market to grow.
As we make our way toward that future, make sure you’ve prepared yourself for the biggest gains possible. Don’t miss this opportunity.
Executive Director, National Institute for Cannabis Investors
One response to “Q&A: Will Cheap Colombian Cannabis Hurt Us?”
June 08 2019