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.

Beware To Be Aware Of Replication

Most people who take advantage of a company sponsored tax-favored retirement or health savings plans often commit a cardinal sin of investing. They fail to research the investment options before allocating their contribution and the company’s match. It is not enough to research the mutual funds. You also need to look at the underlying securities. Much to my chagrin, many options within 401k and HSA plans often overlap the underlying securities, albeit at different percentages. What do I mean by that? Let me give you an example.

Not too long ago, an acquaintance asked me to help him analyze his investments across three accounts. He had the standard brokerage account, a traditional IRA, and a Roth IRA. After reviewing his current position, all of which were chosen by a “professional” financial planner, I discovered this sin of replication.

The following example includes actual numbers. I use this example to highlight the repetition in just one of the accounts. Based on the common top ten holding, if the industry takes a hit, so too does each of the four CEFs (Closed End Funds). The result is a magnifying effect of losses. Of course one could argue that if the industry does well, the gains will also be magnified in the positive direction. However, one needs to know the industry before committing this type of strategy.

This person’s financial advisor had him invested in 4 CEF's in his brokerage account. The top 10 holdings in these 4 CEF's duplicate each other as seen in the tables below. (Price is of 4/18/2018)

Notice the repetition of companies; over $90,000 invested in essentially the same companies although at varying percentages. This is not diversification. It is replication and is actually a risky strategy.

For those who participate in any company sponsored 401k or HSA plans, understanding the underlying securities that make up the mutual funds in which a person may invest is important. For example, in the HSA account offered by Health Savings Administrators, there are five Vanguard funds that replicate their top ten holdings. This is astounding. The following table illustrates my point.

If, for some well-intentioned reason, a plan participant distributed his or her contribution across these five mutual funds, he or she is at risk of magnifying any potential loss based on the number of times a security is replicated. If the If Facebook, Apple, Alphabet, and Microsoft took a hit, all five mutual funds would take a hit and the loss would be magnified.

My suggestion is before you invest in any mutual fund, regardless of the type of account, do some analysis on the underlying securities. True diversification means not replicating the underlying securities, especially not the top ten holdings. If you have questions about how to analyze mutual funds, leave a comment.

Ten “Do Nots” About Setting Goals

I put together this short list to highlight the mindset a person needs to be successful in achieving personal goals. There are times when the application of all of the rules will be required. There are other times when the nature of the goal will dictate the rules that apply. Although this list is a list of “do nots,” reading the rule in the affirmative will help guide you to taking the correct action when setting goals.

If you need additional guidance on setting goals, I have an entire chapter in my book, Simple Wealth Building Strategies. In this book, I go into great detail on setting goals from both an physical and intellectual perspective. I believe this resource will help you change the trajectory of your life, but you will have to do the work of learning and applying the information. I hope this short list of “do nots” help you focus on your future success.

Here is the list of things you should refrain from doing if you want to be successful at achieving your goals.

1.    Do not set goals that require someone else to change. I want my husband to love me more is not a goal YOU can achieve. People change because they want to, not because you want them to. Your goals should be about changing you, not others. Tying your goals to changing others is a sure way to become frustrated, bitter, and, in the end, a failure.

2.    Do not set goals that require someone else to accomplish something so that you can accomplish something. Goals that are dependent on someone else’s accomplishments often cause frustration because the goal becomes more about controlling someone else’s behaviors than it is about controlling yours.

3.    #160;Do not set goals that focus on changing the circumstances in which you live. Rather, set goals that change how you interact with the circumstances in which you live. Trying to change the circumstances is like swim upstream on the Mississippi River, you might make it, but you’ll waste a lot of time in the process.

4.    Do not set goals that compromise your character. In the end, you may have what you want, but no one will want you. Every life leaves a wake upon the shores of those with whom they interact. Compromising your character will erode your relationship and destabilize your ability to achieve future success.

5.    Do not set negative goals. Removing something from your life is not as important as adding something to it. Instead of setting a goal to lose weight, set a goal to eat healthier and exercise more. Instead of setting a goal to reduce spending, set a goal to save more. Focusing on the positive is far more fulfilling than always focusing on the negative.

6.    Do not set goals that conflict with other life priorities. Always keep the most important things the most important. When your goals compromise you commitment to your faith, family, and friends, the achievement is never worth the cost. Have rock solid priorities and your goals will always compliment them. 

7.    Do not set goals that lack discipline. Discipline is a combination of three elements: character, stamina, and wisdom. Goals that challenge your current abilities build character, develop stamina, and produce wisdom. Your character is who you are when no one is watching. Stamina is the ability to stay committed even in the face of overwhelming negative odds. Wisdom is the appropriate application of knowledge gained through experience and observation. Discipline is the capstone of achievement.

8.    Do not set goals that are too easily achieved. Goals that are too easily achieved produce a false sense of security and accomplishment. Training yourself to overcome trials and tribulations will sustain you when times get tough. Stretch goals force you to be uncomfortable. When you are able to achieve your goals in the face of adversity, you will have a greater sense of accomplishment and confidence.

9.    Do not set goals that are unable to produce a return on your investment. Time is the single greatest resource of which you have no ability to create more. Why waste it on pursuing goals that do not add value to your life? There is a distinct difference between goals that build wealth and those that waste resources. Your goals should move you towards a financial target, not further away from it.

10. Do not set goals that fail to have a sustainable target. That is, once the goal is achieved, it has the ability to self-sustain a pattern of continual growth or improvement with little or no effort. The best measure of a goal is one that eventually becomes a way of life. Once you have overcome the major roadblocks to achieving the goal, you are able to sustain the activity without struggling to continue to achieve the goal.

If something here has helped you, please share this post with your contacts. Don’t forget to pick up your copy of Simple Wealth Building Strategies and keep your eyes out for my new soon to be released book 10 Roadblocks To Successful Investing, And What You Can D0 To Overcome Them.