investing in marijuana
Guest Post Marijuana Business News

Anthony Wile, Motley Fool Caution Early Cannabis Investors

investing in marijuana
(image via potnetwork.com)

Lately it seems that everything is falling into place for the cannabis industry and early investors. Canada is on its way to legalizing marijuana and Australia and Britain may soon be considering legalization as well, certainly when it comes to medicinal cannabis. The potential profits seem sweet.

But this may or may not be the case. Recently, some articles have raised concerns that the industry is simply not mature enough for most investors to take the plunge right now, even after considerable due diligence.

The Motley Fool posted an article in early October that clearly presented some of the negatives the industry is facing, especially in the US where cannabis companies would seem to have made significant progress.

The article warned that challenges facing the industry remain “intense” and then went into some detail regarding these hurdles – which it suggested are both national and local.

On the federal level, Congress has not moved significantly from its stance that it is not going to explore decriminalization and legalization whether or not individual states make changes. As the federal government has sustained cannabis’s illegality, the banking system remains off limits as well, and this makes it difficult for businesses in the sector to operate normally.

On the national level, too, concerns about the safety of cannabis continue to be debated, in spite of compelling studies finding benefits in its use in treating certain health conditions as well as positive social outcomes in US states that have legalized adult-use cannabis to date.

“Early-bird” investors moved quickly to invest in cannabis on either a private or public level, believing the industry would move quickly in the direction of national legalization. But, what if this is not the case? The slower pace can have monetary repercussions as companies that counted on substantively expanding markets to sustain operations may face difficulties.

Anthony Wile, chief investment strategist for High Alert Investment Management, has similar concerns but a different emphasis, which he detailed in an editorial published in a November 2, 2015 Globe and Mail editorial, “Investors Should Take a Deep Breath Before They Try Cannabis.”

Anthony Wile cautioned investing in cannabis is not for the light of heart, not just because the industry is currently in flux but because nobody really knows how regulatory changes and the entrance of large corporate interests will shape the revenue-sharing streams of the industry in the near and medium term.

The Motley Fool emphasized the hurdles the industry – and individual enterprises – face in the US, but Wile’s concern is that major changes over the next few years would change the industry significantly on a global basis. What looks – and seems – profitable now might become untenable as regulations evolve and multinationals begin to enter the industry.

Anthony Wile presented his concerns this way:

As with any burgeoning new industry, including the Canadian cannabis industry as it ”whitens” from its previous black-market status, investors considering directing their capital there may want to take a temporary respite from hitting the go button. Investors who make assumptions today about what may be profitable tomorrow will likely find their wallets considerably lightened by a changing set of regulatory circumstances.

Wile’s vision of the industry seems an accurate one. With many billions of dollars at stake right now it seems unlikely and somewhat naïve to think that larger corporate players will not find ways to garner the lion’s share of the global cannabis market.

Many cannabis businesses have been started in colder climates because legalization and decriminalization have moved most quickly in countries like Canada and the US. But as countries better situated to grow cannabis year round – Colombia comes to mind – legalize, the initial crop of growers may find it difficult to compete. Already concerns are being raised about the amount of power and water indoor growers use.

Anthony Wile’s larger point is that better-situated participants may not even have emerged yet. And it’s not just growers, obviously. The multinationals that dominate tobacco and alcohol are readying their networks for maximum efficiency. The profile of the industry will be determined over the next several years. It will not be what it is now.

Importantly, an upcoming special session of the UN General Assembly on cannabis and other drugs may shift the very foundations of cannabis cultivation, production and marketing. The UNGASS conference in April in New York City may significantly change the global approach to dealing with the demand and supply of drugs in general, suggesting that member nations pursue legalization and provide treatment rather than incarceration for those who have difficulties with drug abuse. These conclusions will surely have a significant impact on the profile of the cannabis industry and its players.

Wile’s vision is broadly based and longer-term and The Motley Fool’s somewhat different concerns are no less valid. The business hurdles that are now in place may prove problematic because the industry is simply not growing fast enough and not removing encumbrances quickly enough. Here’s more from The Motley Fool:

Arguably the biggest issue the industry faces is black market growers and retailers. Operating in the legal marijuana business comes with a price … extra costs, such as licensing fees, and higher price points due to excise (and sometimes local) taxes along the way. Growers, processors, and retailers all want their pieces of the pie. What this does is push the price of legally grown marijuana up far beyond the cost of unregulated (and still illegal) black market marijuana. The response from some consumers is to simply bypass the regulated market and save money…. More than a year after legal sales commenced, some three-quarters of Colorado’s jurisdictions do not recognize marijuana as legal and still ban the drug. Enforcing marijuana laws and targeting consumers can be extremely tricky with this swiss cheese-like legalization.

Good points. Even without considering seismic shifts in the industry, the current crop of businesses may suffer simply because important aspects of their business (like banking) remain partially or completely untenable.

The net result of these two articles is to inform investors and potential investors that sometimes “first in” is not a wise investing move even when an industry seems wide open and profits are apparently there for the taking. As Anthony Wile puts it: “Fools rush in.”

  • PhDScientist

    My big concern GWPH’s attempt to patent CBD.
    If they wind up owning it it will be good for them and their stockholders but bad for society in general.

    • Sarijuana

      Not a valid fear, in my opinion. So far they have been totally into developing their own strains for THC and CBD, just like Monsanto and others have been doing for years with all kinds of plants – consumable and ornamental. Strain genetics will be patented, but not parts of a plant, like terpenoids, flavinoids and cannabinoids. You can’t patent the juice that comes out of a grape, but you can patent what you make with the juice, and maybe even the plant itself.

      • PhDScientist
        • SycHortCons

          True, but how can the USPTO allow many (any?) of these applications? It seems there should be ample prior art for CBD for neuropathic pain, etc. USPTO does not always look very hard for prior art though.

      • PhDScientist

        Chemicals can be patented. Go to the USPTO web site.
        While Obama and Congress fiddled, GWPH has been patenting every biochemical in Marijuana that they can.
        Is a multi-billion dollar disaster for the USA, US Drug companies, and US Scientists, Physicians, and Patients.
        GWPH’s effort to patent CBD across the board needs to be stopped dead in is tracks but it may be too late already.

      • PhDScientist

        Blockbuster drugs can be worth Billions to tens or even hundreds of Billions of dollars over the 20 year lifetime of the patents on them.

        GWPH has 48 issued patents, including a number of very broad patents, concerning biochemicals found in cannabis, and patents on clinical use of them.

        GWPH has 80 published patent applications relating to biochemicals found in cannabis as well as patent applications for clinical use of them,
        and many more that haven’t been published yet.

        Its an IP gold mine for them and a disaster for the rest of the pharmaceutical industry.

        Thank the idiots in Washington (congress and the executive branch) for one of the biggest screw up of all time.

        The lost economic opportunity to US companies over the lifetime of the patents could be in the tens of billions or more likely hundreds of billions of dollars.

        Now TEVA is getting into the game.

        When they move in, its because they see opportunities in the 10’s to 100’s of Billion of dollars.

        The guys who run TEVA are very, very, smart, and both the UK and Israel (not to mention a few other countries) are WAY ahead of the US in Medical Marijuana research.

        • Sarijuana

          I won’t argue that. And, I tap out, because you know way more than I do about the pharmaceutical world, but I will add that a patent application is not a patent. And a patent in the UK isn’t a patent in the US. Yes – it is all something we need to watch very carefully. Yes – it is too bad that Big Pharma in the US is being held back, but I won’t feel too sorry for them. Anyone who thinks they aren’t involved in, or doing their own cannabis research and development abroad in a county that is less restrictive than America, is living in a dream world.

  • Hollowaty Group, LLC

    We’d disagree with the Motley Fool; the biggest challenges to investors and operators in the space right now isn’t the black market per se, but increasing market competition fueled partially by hype, and business decisions by operators that aren’t grounded in rigorous enough analysis. In fact, such competition is fueling rapid price declines in markets such as Washington state, resulting in prices that are ever-closer to black market levels; and yet, we will still likely witness a shakeout of growers and retailers in that market before too long.

    • Sarijuana

      Did you read the whole post? It was Motley Fool, not Wile, who named the Black Market as the biggest challenge. Poor reading retention isn’t the best way to win me over as an investor.

  • John Knapp

    The encumbrances in the industry really make it hard to turn a profit and with a lot of States allowing for personal cultivation, the regulated side of the industry is at a disadvantage in competing with the “caregivers” and personal growers. There is plenty to go around but if the regulators get greedy and take too much it will slow or even reverse the whitening. Washington State is a perfect example.

  • jasen joseph hylbert

    The companies involved in processing industrial hemp are going to have a very very bright future indeed, which in the long term will be very stable.