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SCORE WITH MARIJUANA TRENDS

October 9, 2018

 

Trends are created by events that continually repeat themselves. The trick for success is to understand what the facts are saying and whether such circumstances are the basis of a positive trend.

 

In early years of the 21st century, taxpayers in the major industrial countries were complaining, and still do, about excessive costs to operate their respective governments. Their quiet revolt prompted many sovereignties to conduct studies, which determined what the little guy was complaining about was correct.  The primary administrative cost came from social law enforcement.  In many cases, 22% to 35% of the entire sovereigns' yearly budget was attributed to this category. The component of social law enforcement considered in this paper is the sub-section: Illegal Drug Use as a Factor of Criminal Activities.

 

In the United States, the individual states were committing on average 14.7% of all collectible tax revenue on cannabis enforcement, exclusively because the federal government determined that cannabis was a menacing and insidious drug, equal to heroin.  When taxpayers, not state administrators, questioned the wisdom of the federal law, it was demanded that their legislators find answers, and fix the problem. When the federal government gave no clear response, the states were forced to seek an alternative.

 

As what happened with Prohibition, the states passed laws that directly contradicted federal mandates and regulations, to make cannabis legal under certain conditions, 31 states and the District of Columba have laws of their books legalizing some form of marijuana possession and use.  Thus, the trend curve has tracked upwards. Cannabis has become a hot-button issue.  Wherein, taxpayers want lower taxes and picked cannabis to given them some relief with a taxable revenue source.  Now, a “financial issue” cannabis has accelerated its momentum as a viable commercial commodity with limited downside risk.

 

Case in point - Canada.   During the early years of the 21st-century cannabis was a hard sell.  Difficulty in convincing investors, this left the market open to well-heeled capitalist and no-money dreamers. Even though the trend was up, only the brave at heart entered the fray and found no clear strategy or business model that made sense, still they persevered.   At the higher levels of government, Canadian legislators recognized the opportunity that the flawed U.S. drug laws have overlooked, underestimating the value of the lowly weed.  The black market in cannabis was black not because of virtue but ignorance.  Canada saw the trend, the public backlash of higher taxes and enforcement of laws what were 100 years out of date.  The potential to increase taxable revenue and the public’s desire to embrace cannabis as a taxable commodity gave Canada the impetus to seek full legalization.  Upon the event, investors piled into the sector ahead of full Canadian approval, which will happen on October 17th.  Market values had ballooned, leading some to draw comparisons with the tech-stock bubble of the later 1990s. The trend remains positive, but Canada based cannabis companies require a period of consolidation to reinforce the positive trend and to grow into the new valuations that legalization has to offer.

 

In the United States, cannabis-based public companies are trending higher, mimicking the circumstances that allowed ran away values in Canada, but at a moderate pace. At this point prudence and patience may be bitter but are the fruits of success. Nothing is more dangerous than an idea without discretion, even a prudent trend is preferable. Profits in U.S. based public companies may be difficult before they become easy.  A direct and conservative business model and strong fundamentals are the keys to look for.

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