Money Rehab with Nicole Lapin - Investing in Marijuana: Buy Low, Sell High?

Episode Date: April 19, 2024

Tomorrow is 4/20… and yeah, we’re talking about it. Cannabis companies have attracted some bullish investors— and some bears. So, which one should you be? Nicole talks it through. 

Money rehabbers, you get it. When you're trying to have it all, you end up doing a lot of juggling. You have to balance your work, your friends, and everything in between. So when it comes to your finances, the last thing you need is more juggling. That's where Bank of America steps in. With Bank of America, you can manage your banking, borrowing, and even investing all in one place. Their digital tools bring everything together under one roof, giving you a clear view of your finances whenever you need it. Plus, with Bank of America's wealth of expert guidance available at any time, you can feel confident that your

money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. I'm Nicole Lappin, the only financial expert you don't need a it's time for some money rehab. Tomorrow is 420. And yeah, we're talking about it. 420, of course, has become the unofficial or maybe even official at this point day of all things marijuana in the US. But no, this is not an episode about smoking weed. This is an episode about the marijuana industry because the industry has attracted some bullish investors and some bears. So which one should you be? Let's talk it through. Marijuana is legalized in 24 states. Interestingly, recreational marijuana

is legalized in DC, but not legal on the federal level. First, let's clarify what legalized means, because I think the headlines are pretty confusing. The headlines are always marijuana is legal, but that doesn't mean that anyone can just buy or sell marijuana like it's candy the legalization of marijuana is really about the buyers it means that you can buy and use marijuana legally it tells us less about the sellers as an investor you'd want to understand both is it a system where both the buyers and the sellers are coming together in a consistent streamlined way? New York is an interesting case study here. In 2020, before marijuana was legalized, Black and Hispanic residents made up 93% of marijuana-related arrests in New York City. But Black and Hispanic residents only make up 52% of the population.

It is no secret that there is a history of people of color being profiled for drug-related charges and getting more serious sentences. So the first licenses in New York were given to people who have been impacted by the enforcement of cannabis. Now, in New York, more than 60 licenses have been issued. But here's where the question of viability of the business comes in. There are a ton of weed stores operating illegally in New York in total plain sight I mean if you've been to New York recently you've seen it there's a weed store on every block I'm not kidding New York officials have calculated that there are at least 1400 unlicensed shops in the city this seriously disrupts how the industry can be viable for investors for several reasons first

if the business is running illegally, they're not paying taxes on drug-related income, which means they can afford to charge lower prices, which they do. Plus, licensed weed stores in New York can only sell weed that's grown in New York because there's a federal law prohibiting the transportation of marijuana across state lines. Illegal weed stores sell their products at lower prices, which makes it really difficult for the licensed stores to compete. Plus, they aren't held to costly state regulations, labor laws, and safety tests, which further enables them to cut down their prices. So why do these businesses operate in plain sight? Our EP Morgan had an odd personal experience with this. Here she is. experience with this here she is okay so this is not actually what it sounds like so my fiance jack who has been on the show before him and i have lived in the same apartment for three years now

it's in brooklyn it's awesome we love the neighborhood we love our landlord our landlord is wonderful he's never raised the rent on us, which is crazy. I've never had a landlord who has kept the rent the same ever in my life. So it's awesome. We have a suite set up and the building is small, which I also really like. It's just one commercial unit below us and then us, and then there's one residential unit above us so just three units total and when we first moved in the commercial unit below us was a mortgage brokerage situation and then a weed store moved in and it was very clear to us that they did not have a license. It's like they kept the mortgage brokerage sign out front, but they were just simply selling weed. And we were like, okay,

we were like, fine, not ideal, but fine. And then our landlord wrote to us and said that the weed store below us was thinking about taking over our lease and converting our apartment into a smoking lounge. And we were like, what? First of all, what do you mean they're thinking about taking over our lease? Like, do we have any say? What is going on? And also, it's like very much a residential unit. You walk in and you're in the kitchen. And so it would like, I can't picture it being not a home. Like it's just not set up for parties. It's set up for people to live there and we live there. And so what? And so we called him and we were like, what's going on? We want to live here. We'll resign for a long, long time. And he was like, I don't know. Like, I'll just let you know what me and him decide. He's a young entrepreneur, like really want to support small businesses. And we were like,

what the hell? And so then we went out and we saw other apartments as a backup and they all had weird things wrong with them. We saw one that had like a mouse infestation. And so we were like, what are we going to do? We have to stay in our apartment. We love our apartment. And so this is a little shady of us, but we were thinking about reporting the unlicensed weed store that was below us because we were like, they don't even have a license to operate. Like it's an illegal business and they're going to take over our lease. And so maybe we just tell someone about it. I don't know. Not a proud moment, but also, I don't know. It's like kind of fair game. Anyway, we tried to report them to the police. We went to our local police station in person and asked to speak to someone and no one would talk to us about it. It was a crazy experience I've ever had. We were like, hey, like, what can we do about an unlicensed weed store in our unit that is kicking us out of our building and the police officer that we talked to was like there are so many illegal weed stores right now that we can't start going after them

individually one by one we need to have a more coordinated effort and so we can't do anything about it right now like it's too big of a problem that we, our hands are tied. And I was like, how does this make any sense? And they were like, you're going to have to call the sheriff. And I was like, the sheriff? Where are we? Indiana? Like does New York City even have a sheriff?

This is crazy. Tried to call the sheriff. Basically got rerouted to like every bureaucratic political department in New York City could not track down the sheriff. And so we're freaking out being like, we're going to get kicked out of our apartment. And what are we going to do? We start looking at like Airbnbs in Spain because we're like, well, I guess we're digital nomads now. And then in the middle of the night, the night, in the middle of the night, our landlord texted us and just said, we gonna go with you. I don't know why. I don't know what

changed, but immediately we were like, yep. Okay. Got it. And then we signed, we sent the lease, which is another funny thing. He was like, Hey, can you send me a lease? And we were like, sure. Landlord, we will send you a lease. And so we did that immediately. He was like, Hey, can you send me a lease? And we were like, sure, landlord, we will send you a lease. And so we did that immediately because we were like, let's not ask any questions. Let's just lock that in. So everything worked out. I'm taping this from the apartment that we still live in and we re-signed. And so we are here. Um, and so it was the weed store and everyone seems to be good. I think they maybe got a license, but I'm honestly not sure. But it was just a really crazy experience to go through. And it just gave me zero faith that the issue of illegal or unlicensed weed stores operating in New York is going to change

anytime soon. I have zero faith that that's going to change. And this isn't a problem specific to New York. In places like California, it's estimated that illegal operations command between 80 and 90 percent of the market, which is crazy. This makes the industry hugely unattractive to investors because investors can only invest in companies that are licensed. But these illegal weed stores have a huge competitive advantage by being able to offer customers a lower price. This is not what you want to see as an investor. Stocks known as multi-state operators, MSOs, have largely disappointed investors. If an investor is looking to make a bet on the marijuana market, they'll usually do

one of two things. They'll either invest in a specific company that has marijuana related products or they'll invest in a fund that holds stocks of several companies in the marijuana industry. This is like any commodity, right? If you wanted to invest in gold, you'd invest in a company that mines gold or you'd invest in a fund that holds gold mining companies, gold jewelry companies, and so on. Both individual cannabis-related companies and cannabis-related funds are not doing so hot. Green Thumb Industries, Cura Leaf, and True Leaf Cannabis Corp. are some of the largest publicly traded companies in the cannabis space.

Green Thumb Industries is down more than 13% over the last five years. Curaleaf is down almost 50% in the last five years. And Trulieve is down almost 12% over the last five years. This is a similar story with the ETF cleverly named TOKE, T-O-K-E, that holds cannabis-related companies. And that's down 76% over the last five years. And just to put this into context, the overall market is up more than 70% compared to where it was five years ago. So these cannabis-related stocks and cannabis companies are going down in an up market, which is not a great sign. And the falling price of marijuana, down 6.4% at the beginning of the year, likely due to all of the illegal activity,

also makes the outlook for this type of investment disappointing at best. Of course, if there's any positive signaling that marijuana will be legalized on a federal level in the U.S., cannabis stocks will pop. But experts don't think that's going to happen tomorrow. On the federal stage, legislation such as the Marijuana Opportunity Reinvestment and Expungement or MORE Act aims to decriminalize marijuana by removing it from the Controlled Substances Act. The MORE Act also proposes equity-focused provisions like expungement for certain cannabis offenses and a community reinvestment program. However, despite its promise, the act remains stalled in the legislative process, reflecting the slow and contentious

path toward federal legalization. According to studies done by Pew Research, 70% of Americans express support for legalization. And as we enter an important election year, issues with significant public support become especially influential. However, there's a lot of money being spent on lobbying against federally legalizing marijuana. Significant pharma lobbies oppose legislation because of concerns that cannabis will be used as a pain relief treatment, which would compete with brands like Advil, ibuprofen, and more. Police unions have also spent a significant chunk of change on supporting politicians that oppose legislation. Some speculate that's because police departments want to protect the federal funds that go to drug enforcement departments, but that seems a little speculative to me. I will say that Canada offers

a totally different picture here. Since legalizing recreational cannabis nationwide in 2018, it has developed a thriving market for public cannabis companies. The stability and maturity of Canada's market present potentially safer opportunities for long-term cannabis investors compared to the tumultuous U.S., but still, even though the market in Canada is more mature, it doesn't change the fact that the price of cannabis is volatile. Net-net, whether or not cannabis is a good investment, hinges on whether there will be harsher cracking down on sellers who are operating illegally, and whether recreational marijuana use will be federally legalized, or at least in more states than the 24 where it's currently legal. And because of all of these unknowns, it is just not the best

fit for a cautious investor so whether you think the cannabis industry has a profitable future ahead depends on whether you think legislation will side with public opinion or private companies truthfully i don't know enough about the politics of this to make a good prediction but what i can say is that the data on these cannabis stocks indicate to me that these stocks are not a promising short-term investment. For today's tip, you can take straight to the bank. If you're looking to invest in marijuana, but you wisely don't want to take the risk of investing in just one stock, you can search for funds that hold stock in marijuana-related companies, but don't only have marijuana-related companies. For example, I just looked at Cura Leaf Holdings,

which again is down almost 50% in the last five years and found that the company is being held by Putnam Global Healthcare Fund Class A, which is up 22% over the last five years. And that's the beauty of ETFs and chill. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Levoy. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynew Money News Network for exclusive video content.

And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.