Many indicators reveal when a fledgling, disruptive industry has finally achieved big league status. When it comes to marijuana, I point to the 180-degree turn of John Boehner.
Former U.S. House Speaker Boehner left Congress in 2015. In recent years, he has become a cheerleader for the legalization and commercialization of pot, a substance that he once demonized.
Boehner, age 73, served nearly five years as speaker. A conservative Republican from Ohio, he isn’t exactly a hippie. The perpetually suntanned Boehner is famous for chain-smoking Camel Ultra Lights, avidly playing golf, and in the after-hours swirling Merlot wine. The press has often referred to him as the Dean Martin of DC.
In 2011, Boehner told a constituent he was “unalterably opposed” to legalization. But in 2018, he joined the board of advisers of Acreage Holdings (OTC: ACRHF), a small cannabis investment corporation based in New York City (market cap: $131.4 million). These days, Boehner frequently holds forth at conferences on the wisdom of investing in cannabis.
One sure sign of an industry’s arrival into the investment mainstream is when it spawns a frenzy of mergers and acquisitions (M&A). Consolidation is a sign of sector maturation. To continue my Acreage story…
Canada-based Canopy Growth (NSDQ: CGC), which boasts a market cap of $1.6 billion, announced in October that the company is consolidating its U.S. assets into a new holding company called Canopy USA.
Canopy said the move will allow it to complete its acquisition of Acreage Holdings, Colorado-based edibles specialist Wana Brands and California extracts maker Jetty. Those assets will be housed under Canopy USA. Canopy’s reasoning: The marijuana market is saturated in Canada, but pot sales are still booming in the U.S.
(If you’d like to know more about these marijuana companies, and their suitability as investments, consider my new premium trading service, Marijuana Profit Alert. Click here for details.)
Let’s make a deal…
Fact is, despite the overall bear market, dealmaking is holding its own throughout the marijuana sector. The level of activity has slowed, but neither has it collapsed (see chart).
The main motivator behind these marijuana company marriages is the ability to take advantage of economies of scale. Through mergers, marijuana companies can lower costs by eliminating redundant operations and employees, even as they can squeeze better deals out of suppliers and providers by virtue of their size.
What’s more, by purchasing the smaller purveyors, brand name consumer giants with conventional products immediately obtain new marijuana offerings, without having to develop these products from scratch. The smaller fry, in turn, get instant access to a vast, well-established supply and retail infrastructure.
A shrewd way to capitalize on these trends is to find companies on a probable path to M&A activity and invest in them before the news becomes official, to profit from their future momentum. As they say on Wall Street: “Buy on the rumor, sell on the news.”
WATCH THIS VIDEO: Pot Stocks Are Poised to Light Up 2023
Global mega-cap food and beverage conglomerates have stepped into the fray, gobbling up small and promising marijuana companies like a game of PacMan. Notable examples include Constellation Brands (NYSE: STZ) and its major stake in Canopy Growth, and Altria Group’s (NYSE: MO) acquisition of Cronos Group (NSDQ: CRON).
Companies in the consumer foods, health services, and cosmetics industries are increasingly infusing their products with marijuana. Acquiring a small local or regional brand is a fast way to accomplish this goal.
Editor’s Note: I’ve launched a new investment service, Marijuana Profit Alert, to help subscribers find the profitable opportunities I’ve just discussed.
My new publication covers news and trends in the marijuana industry. I also speak on a regular basis with industry insiders, whether they’re on Capitol Hill or in corporate suites or on Wall Street.
I crunch a lot of data, put it through my proprietary screening system, and provide specific, actionable advice on the best investments in the marijuana and psychedelics sectors. I strive to strike the right balance between risk and reward.
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John Persinos is the editorial director of Investing Daily. You can reach John at: [email protected]
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