Will Cannabis Stocks Go Up In Smoke?

These are exciting times for investors who enjoy first mover opportunities. With the budding new industry being created by the legalization of medical cannabis across North America and the world and, consumer cannabis in Canada, investors who are willing to tolerate high volatility have the opportunity of a lifetime. To get into a developing industry on the ground floor gives the investor an incredible opportunity, but not one without it fair share of volatility. With the number of public and private companies looking to capitalize on consumer demand for cannabis, navigating the terrain and picking winners is a daunting task.

There are several ways to play the cannabis industry including pure stock plays, peripherals, and partnerships. In this article, I want to focus on pure stock plays and then address peripherals and partnerships in future blogs. I do not want to focus on individual companies per se’ because, a simple google search will give you more information that the average person can digest. What I would like to discuss is the S.W.O.T. of investing in cannabis as a pure stock play.

The first caution of cannabis investing is to employ the following three strategic concepts:

§  know thyself

§  know the market

and

§  know the company

First, Know Thyself: Temperament can limit one’s ability to overcome the emotionality of volatility. If you are more prone to intellectual efficiencies, your ability to make decisions based on logical data will serve you well. However, if you are more apt to react emotionally to volatility, you will have to work extremely hard to invest in the cannabis market. It is often said that intellectuals can think themselves into anything and emotional people can feel themselves out of everything. If volatility causes you to freak out, then stay out of cannabis.

But volatility is one aspect of the market that can cause insecurity when trading in cannabis stocks. An investor must temper his or her greed as well. It is easy to convince one’s self that buying a large number of shares at a low price is a sound investment. After all, if the company excels, you make more money. However, the best advice I could offer is this.

If you, as an investor, decide that the cannabis industry has a place in your portfolio, then diversify across multiple companies. By having a small number of shares in many companies, you position yourself to capture arbitrage from M&As and well as partnerships which may form with more traditional companies such as tobacco, beverage and even confectionary companies.

Second, Know the Market: Since the cannabis industry is still developing, knowing the market is not as easy as it sounds. Knowing the market happens at the macro-level. It is big picture and following legislative decisions will help you navigate the industry. If the current U.S. administration bends its ear to the purveyors of cannabis, you can bet the early investors will benefit the most. Once institutional investors are given the green light, you can sit back and watch the money roll in and the stock prices go up.

In addition to the above, there is likely to be a lot of M&A action as companies vie for market share and one-ups-man-ship. Several companies have already participated in acquiring smaller niche companies. This happens in every industry, but will accelerate in the cannabis industry as the real players emerge. Knowing the M&A market as it pertains to cannabis will be highly important concerning the third caution of cannabis investing.

Third, Know the Company: Learning how a company wants to position itself within the industry will provide the investor key information as to the viability of the company in this space. Knowing the company happens at the micro-level. An investor at this level, needs to know the profiles of the companies, which are literally creating a new industry. This is key to determining what direction you want to go as an investor in cannabis. Here are a few of the top companies in this space and their profiles.

• Aphria is positioning itself as a low-cost pot producer
• Aurora Cannabis investments may be more valuable than its pot
• Meet Cronos, the Heinz Ketchup of weed
• Canopy Growth is the cannabis business’s $4 billion gorilla
• GW Pharma is a drugmaker that grows its own cannabis plants
• Vancouver Island–based Tilray has global ambitions

Information derived from Yahoo Finance.

Knowing that Aphria is looking to capture the low-cost market lets an investor understand the market, but it also gives valuable information about potential M&A activity and potential partnerships. With Aurora having investment more valuable that its cannabis products could make it an attractive acquisition target. Each profile gives an investor information about the direction of the company. Tilray, having global aspirations, puts them in the driver’s seat for acquisitions.

So, what might some of the Strengths, Weaknesses, Opportunities, and Threats faced by the investor concerning the cannabis industry be? One of the top strengths of the industry for investors is the newness and acceptance of cannabis. The world is quickly changing (whether for better or worse) and acceptance of cannabis by the general public is gaining momentum. However, this new acceptance is fraught with regulations. This weakness could make the growth of the market limited and susceptible to legal actions, as we have seen with tobacco.

In addition to that, there is the enticement of making large returns via capital gains. Opportunities to buy in at times of negative volatility (when stock prices fall violently) and selling during positive volatility (when stock prices rise rapidly) can result in decent gains in one’s portfolio. Timing is everything in this market and those with the best sense of timing will do well.

Finally, the greatest threat for the investor, I believe, is the government. Since the government thrives on taxing additive substances (consider tobacco and alcohol) there is no doubt they will use cannabis as another revenue source. In order to legally grow and distribute cannabis, a company must operate within the confines of the law, but this does not necessarily mean the black market will dry-up. Since it will be legal to possess and consume cannabis, once purchased, there is no way for the law enforcement community to know where someone purchased the product.

Illegal purchases will not only reduce the tax base, but it will also take money out of the pockets of the companies’ investors are looking to invest in. The industry has great early market mover opportunity, but will experience strong volatility until the dust settles and the leading players begin to solidify their position.

As a pure stock play, the investor should expect significant volatility along with some great opportunities until the market settles into its new reality. The best companies will rise to the top and the less significant companies will likely be acquired by the bigger players. Which company offers the best opportunity is based on the investor’s perception and own direction. Remember, know thyself, know the market, and know the companies. These three analytical concepts will help any investor make better decisions and improve his or her ability to navigate the cannabis industry.

Financial Black Belt™ Financial Self-Defense Training

Recently, I have been asked what it takes to achieve the rank of 1st Degree Financial Black Belt™. So, I have put together the structure of the training I offer under my Financial Self-Defense Training. 

Let me begin by saying that this is the most intense financial training an individual can experience, because you don't just learn the requirements, you execute them. I say "can" experience because not everyone has the special je ne sais quoi, that little something that eludes description, to become a Financial Black Belt™. Membership in the Financial Black Belt™ ranks is exclusive because achieving the rank of 1^st Degree Black Belt requires a life-long commitment to do the extraordinary with ordinary resources.

Achieving the rank of 5th Dan Financial Black Belt™ (Master), is a life-long journey and often isn’t achieved until one is retired. It takes, on average, 3 years for a person studying martial arts to become a Black Belt. That is, of course, so long as there are no interruptions along the way and he or she attends class at least twice a week. Becoming a Financial Black Belt™ will take longer. However, the same discipline required to earn a Black Belt in martial arts is required to become a Financial Black Belt™. You have to fight past the pain, the setbacks, and the times when you feel like giving up. Of course, just as with martial arts training, you do not begin as a Black Belt. You have to work your way through the ranks. Everyone, regardless of his or her current financial situation, must start as a No Belt. Also, just like martial arts, everyone will progress at his or her own pace, from No Belt to 1^st Degree. The time frame is determined by how determined you are. Everyone starts as a No-Belt, but where an individual finishes, is dependent upon that individual.

Financial Self-Defense training is available for individuals, groups, and employees. To learn how to start training today, send your email request to financialblackbelt@gmail.com.

The Ranks and Requirements for each:

No Belt: Upon starting the Financial Black Belt™ Financial Self-Defense Training, an individual will be given the information he or she will need to know and practice in order to advance to the next belt level. Each belt level achieved will result in the individual receiving additional information and action items he or she will need to practice before being tested for the next belt. Yes, there is a test for each belt level.

White Belt: In order to attain the rank of White Belt, an individual must understand and be able to explain the basic concepts of personal finance and investing.

Yellow Belt: Must demonstrate that he or she has established a monthly budget using the O.N.C.E. priority process and has set up allotments with employer as described in the strategy.

Orange Belt: Must demonstrate that he or she has established a Tier 1 Emergency Fund containing 3 to 6 months of living expenses

Green Belt: Must demonstrate that he or she has reached a Tier 2 Emergency Fund containing 1 year’s net salary

Blue Belt: Must demonstrate that he or she has reached a Tier 3 Emergency Fund containing 1 year’s gross salary

Purple Belt: Must demonstrate that he or she has paid off all unsecured / consumer debt and maintains a zero balance on all credit accounts by paying any incurred unsecured / consumer debt balance off monthly

Brown Belt: Must demonstrate that he or she has established a taxable investment account with a reputable brokerage firm equal to 1 year’s gross salary

Brown Senior Belt: Must demonstrate that he or she is maximizing Roth IRA Contributions (for self and spouse) (<50 = $6,000 / >50 = $7,000) Totals based on 2019 IRS limitations. Contribution limitations are subject to change due to IRS rules.

Red Belt: Must demonstrate that he or she is maximizing HSA Contributions (Self = $3,500 / Family = $7,000 or <55 = $4,500 / >50 = $8,000) Totals based on 2019 IRS limitations. Contribution limitations are subject to change due to IRS rules.

Red Senior Belt: Must demonstrate that he or she is maximizing 401k Contributions (<50 = $19,000 / >50 = $25,000) Totals based on 2019 IRS limitations. Contribution limitations are subject to change due to IRS rules.

Red / Black Belt: Must demonstrate that he or she has paid off all secured debt and establish the Champaign Waterfall Strategy for income distribution

1^st Dan Black Belt: Tier 1 Millionaire - Net worth millionaire where total assets minus liabilities equals more than $1M

2^nd Dan Black Belt: Tier 2 Millionaire - Financial assets millionaire where total financial assets equals more than $1M

3^rd Dan Black Belt: Tier 3 Millionaire - Retirement assets millionaire where all tax-favored assets equals more than $1M

4^th Dan Black Belt (Master Instructor): Tier 4 Millionaire - Liquid assets millionaire where all taxable accounts equal more than $1M

5^th Dan Black Belt (Master): Tier 5 Millionaire - Lifetime earnings millionaire where financial assets equal more than lifetime earnings (as recorded by the Social Security Administration)

Personal finance has 3 main goals: Maximize Profit, Enhance Sustainability, and Promote Growth.

Maximize Profit: a.k.a. Financial Offense: The goal is to advance towards the target and dictate positive outcomes.

Enhance Sustainability: a.k.a. Financial Defense: The goal is to protect against possible and probable threats.

Promote Growth: a.k.a. Financial Momentum: The goal is to use life’s momentum to find new opportunities.

Cannabis: The Dot-Com of 2020

Before writing this piece, I had to ask myself “How do I approach this topic without endorsing the industry.” So, I decided to approach this discussion strictly from an investor’s point of view. This meant that I had to set aside personal biases, and focus on where this market is going and how the investor can navigate the risks and rewards associated with the cannabis trend. Like it or not, cannabis is not going away. So, as an investor, it is far more important to study it and understand the direction of such a market, before casting one’s own prejudice on it.

If you are looking to cash in on the latest trend, then cannabis might be worth a look. I have been watching the industry with interest, not because I believe in the legalization of cannabis, but because, as an investor, I believe in the potential of the industry. I have never believed that investing in a company meant that I have to become a customer of said company. Therefore, as an investor, I have learned how to intellectually separate being an investor from being a consumer. After all, I can own Bank of America Corporation (NYSE: BAC) stock without having a checking or savings account with the bank.

The one fact about investing that supports this separation is called the secondary market. Unless you are participating in an IPO (initial public offering), the money you invest is exchanged between investors, not between the investor and the company. When an investor places an order to purchase a stock, he or she is offering his or her financial resources in exchange for the right to participate in the future earnings of the company being purchased. This means, money is exchanged between investors and nothing flows back to the company.

Purchasing any stock gives you the right to participate in the future earnings of a company. It also positions you to take advantage of the arbitrage from mergers, acquisitions, and spinoffs. And this industry is ripe for many of these types of activities. The speed at which the market is developing is reminiscent of the Dot-Com craze of the 90s and where the market is going is anybody’s guess. I have my thoughts on that and I hope to express them here without appearing to endorse the industry as a whole.

So, let’s look at a few facts. The cannabis industry is in its infancy. However, there are a few big players who have risen to the top of the industry. However, I do not believe any single player has cemented the title of best in breed. Canopy Growth Corporation (NYSE: CGC) is one of the top players in this budding market (pun intended). The one thing that sets Canopy apart from the rest is the amount of corporate money it currently has behind it. Constellation Brands, Inc. (NYSE: STZ) has made a sizable investment in Canopy, which give the stock support and stability for the investor.

However, if the market does not play out in favor of Constellation’s investment, the corporation could pull back its investment, effectively crushing the stock. Constellation invested $3.8 billion in Canopy. If they decide to jettison the cannabis industry, Canopy’s stock will become a penny stock. Although I believe there is money to be made with Canopy, I would not want to be holding the stock if things go south and Constellation decides the cannabis play is not to its liking. The encouraging news is that Constellation is willing to put its money where it believes the market is headed.

PepsiCo, Inc. (NASDAQ: PEP) has been rumored to be interested in cannabis infused drinks as well as companies such as New Age Beverages (NASDAQ:NBEV) and Craft Brew Alliance, Inc. (Nasdaq: BREW). Beverage companies are not the only one interested in throwing corporate money behind the cannabis industry. The tobacco sector is also interested and companies such as Altria Group, Inc. (NYSE: MO) have most recently expressed interest. If corporate money gets behind this industry, it will be a good place for an investor to be, but those with first mover advantage will make the most money.

Looking at the other top players in the industry, Tilray (NASDAQ: TLRY) shares are up more than 800% from its IPO price of $17 per share on July 18^th. In addition to the cannabis stocks such as Canopy and Tilray, which are listed on major U.S. markets, Cronos Group Inc. (NASDAQ: CRON) is seeking to capture U.S. investor’s money. Cronos is a principal investment firm, seeking to invest in companies either licensed, or actively seeking a license, to produce medical marijuana pursuant to Canada's Marihuana for Medical Purposes Regulations.

Cronos is not a producer, but plays in the space of legalized cannabis, as is ETFMG ALTERNATIVE HARVEST (NYSEMKT: MJ), which is a mutual fund of cannabis stocks. I believe it is important for the investor to stay with pure-play cannabis and stay away from those looking to “get in on the action.”

After studying this industry, I believe there are a couple of up and coming companies that offer investors the best opportunity for a return. I believe that along with the new “heavy weights” in the industry (i.e. Canopy and Tilray), Aurora Cannabis (NASDAQOTH: ACBFF) (TSX: ACB) is the hidden gem amongst the cannabis stocks. The entry point is still affordable to most “home gamers” (as Jim Cramer likes to refer to us) and offers exposure to both sides of the cannabis plant – medical and recreational.

Aurora is planning to list on the U.S. Markets in October 2018. Chances are if you read this post after October 31, 2018 the stock will be listed on the NASDAQ. Another over-the-counter stock from Canada is Aphria Inc. (NASDAQOTH: APHQF). This one is also what I consider a hidden gem. It has a lot of attention from Altria. I believe the interest of beverage stocks, as well as tobacco companies, will continue to dominate the social shift to cannabis products – each trying to position themselves in the market.

As the beverage companies look at cannabis infused drinks, there will be others tapping the edibles market. I am watching Rocky Mountain Chocolate Factory (NASDAQ: RMCF), which is located in Colorado, to see if this confectionary company will be moving towards edibles. Right now, there is no indication that it intends to enter the cannabis space, but first mover advantage dictates that watching the company might be prudent.

The final company I want to address, that has had some press around it, is MedMen Enterprises, Inc. (MMNFF) (MMEN.CN), which is a U.S. cannabis retailer. MedMen has a joint venture with Cronos (no pun intended) and just inked a $682 million acquisition of PharmaCann which will make it the "largest U.S. cannabis company in the world's largest cannabis market.” With the news that the Trump administration will look at de-criminalizing cannabis on a federal level after the mid-term election in November 2018, I believe the cannabis industry is poised to make millionaires of those who take the risk and make the right choices as to which company they should invest.

Entry and exit points are as dynamic as the industry itself and caution and due diligence should be exercised. Therefore, be wise and do your research before making the decision to invest. As I stated in the beginning, I am looking at the industry through the eyes of an investor. That is by no means an endorsement of the product itself. It is just an analysis of the world in which we live. There will be money made in this industry. As an investor, you have to ask yourself some difficult questions about your values and your dollars.
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If you are interested in developing the skills to take control of your financial future, consider signing up to become a Financial Black Belt through the Financial Self Defense Training seminar. To learn more, contact me at financialblackbelt@gmail.com.

Time to FALL into a good habit!

It is that time of year again where children are thinking about Halloween and adults are planning for the Homecoming at Thanksgiving. At least that what the retailers would have one believe. But for me, I begin to think back over the year that was and where I am headed in the coming year. That’s right, I am talking about assessing what when right and what when wrong in 2018 and then planning where I want to go in 2019. I, personally, learned some very valuable lessons in 2018, none of which 

I will share publicly, but all which have left an indelible mark on my life.

Most people miss the mark concerning goals because they confuse resolutions with goals. Resolutions are notoriously negative. What I mean by that is that resolutions are normally made to stop a behavior that one has identified as detrimental to one’s existence. Goals are notoriously positive. That is, goals tend to be set to achieve something that is fundamentally positive in a person’s life.

The problem with resolutions is that they force you to focus on the very behavior you are trying to stop. Goals, on the other hand, force you to focus on the very thing you desire to achieve and if written properly, will cause you to practice positive behaviors in the process of that achievement.

I have always advocated that goals, especially strategic goals, give you a lot of flexibility that resolutions do not. Most resolutions require the “setter” to eliminate something from his or her life in order to achieve the desired outcome. If that things is not eliminated, achievement is impossible. 

However, goals retain a steady target with many paths to achievement. That is because properly written goals must have two critical elements, in addition to the goal itself, that provide guidance when things go wrong. And let me tell you, when you are on the right track, things will go wrong.

In 2008 I experience my first layoff in the 28 years I had been working. Starting in my sophomore year of high school, I started working for Arbys. Even though I changed employment over those 28 years, I had never been unemployed. That is because most of the time I was working two and even three jobs at a time. But then came 2008. After working steadily for over 21 years, my employer executed a RIF (reduction in forces). That’s a fancy way to say they laid a bunch of people off.

However, as luck would have it, I had another employment opportunity lined up almost immediately. I never even missed a paycheck between employers. Then, seven years into that employment, the company decided to move my position to another state and decided that I would be part of a larger lay-off. Again, within a month of being laid off, I was once again employed. Then came 2017. After falling into an opportunity where I thought I would ride out the rest of my employable years, I was blind-sided by the politics of a government position.

This time I had to make major adjustment. This period of unemployment would last for over four months. For the first time in my life I filled for unemployment benefits. I found myself attending employment workshops, job fairs, and support meetings. I found myself questioning if this was how I was going to enter retirement. The emotional rollercoaster I experienced was one that I had never experienced before and one I hope to never experience again.

As I look back over 2018 there is one thing that stands out. One thing kept me holding on when it would have been easier to just let go and fall into the abyss of depression. Having goals actually caused me to focus on what I needed to do in order to ensure that I did not have to give up on them. Resolutions would have been easy to give up on. Resolutions do not have the power to sustain you in the face of difficult struggles.

That is why every year, around this time, I begin to look back at what this year offered in terms of challenges that needed to be overcome. I think about how my goals stood up to the forces that tried to disrupt their achievement. And I consider what I might have done differently in the areas where the waves of life breached the walls. Life has a way of taking things from you. Like the waves on the ocean which gives up its treasures during a Nor’easter and then takes them back during a hurricane, life is a constant ebb and flow of challenges; revealing opportunity and then snatching it back from you just as you reach for it.

Even though I had been setting informal goals in high school, I began to write out my goals in 2005. A goal not written out is nothing more than a hope or a dream. You have to write your goals out and refer to them when times get tough… and times will get tough, trust me. Since then, I have become an expert in developing strategic goals that make positive impacts in my life and I have helped countless people change their lives by writing out their goals.

The truth is, I can’t imagine not setting goals. I can’t imagine living life without focus. That is why I am offering to work with any individual who wants to begin 2019 with more focus, more intention, and more purpose. Of course, my time is valuable and the information I provide will continue to pay dividends far into the future. The consultation is free. So why not take a chance and discovery how much you have been missing by not living your life with focus, intention, and purpose?

If you want to take the next step in designing your future by making this the year you learn how to really set strategic goals, connect with me on LinkedIn or email me at krupert1964@gmail.com. You are not paying for a service, you are investing in your future.