(Editor’s note — Sean Brodrick is off in the field, scouting out a tiny gold developer with enormous potential for his Red-Hot Resource Millionaire publication. But he filed this before he left.)
There are many good reasons to like legalized cannabis. Last week, I told you how legal pot can help folks with cancer and other illnesses. The profit potential is another reason.
It’s huge, and I’ll get to that in a bit. But let me give you one more reason …
Legal marijuana is ruining the business of the Mexican drug cartels.
This is despite the cartels’ best efforts. They sneak cannabis over the border in many ways. They disguise it as vegetable shipments … or lumber. They launch it over the border by catapult.
But they’re doing a lot less of it. Because it’s just not worth their while.
You might say that legalization is kicking the cartels right in the bales.
Here’s the latest data from the U.S. Border Patrol …
Agents caught roughly 1.29 million pounds of marijuana at the border. That’s down from a peak of nearly 4 million pounds in 2009. And this number should keep dropping. In fact, the amount of drugs of all types smuggled into the U.S. is projected to fall another 8.23% this year.
Why? Because wholesale marijuana prices declined in 2016 — from $2,500 to $1,000 per pound. Some dispensaries were even offering recreational ounces as low as $65.
This is according to Brian Shapiro, CEO of CannaSaver. That’s a website that helps marijuana users find the best deals. Sort of like a Pennysaver for pot.
Legal growers are rising to meet market demand. And that sends prices down.
So how do the crooks compete with that? While taking huge risks to life and liberty?
Answer: A lot fewer of them are choosing to take those risks all the time.
And it’s not just the price of cannabis that’s on the decline. It’s the quality.
In its 2015 National Drug Threat Assessment, the DEA wrote:
“The quality of marijuana produced in Mexico and the Caribbean is thought to be inferior to the marijuana produced domestically in the United States or in Canada.”
Mexican farmers are having to change their ways. The Los Angeles Times just ran a report about family-farm marijuana growers in the state of Sinaloa, one of Mexico’s biggest pot-production areas. Over just the past four years, the amount these small farmers received per kilogram fell from $100 to $30.
It’s causing many farmers in Sinaloa to hang up their pot pruners and turn to other crops.
And the more the cartels pull back, the wider the market opens for U.S. growers — and U.S. investors.
It is boom times for American pot growers. But as I said, prices went down in the past year. Prices may stabilize, or they may go lower. (They probably won’t go a lot higher.)
So if you’re an investor in this area — and there are lots of opportunities to do just that — you want to avoid investments that will be hurt by lower marijuana prices.
In fact, if a company’s profit margins widen as pot prices plummet, so much the better.
And the further you can get away from the actual plant, the less likely the feds will come along and spoil your party. Remember, no matter what the states do, pot is still illegal at the federal level. And that’s unlikely to change soon.
Still, there is a tidal wave of investment waiting to surge into marijuana as more states legalize. According to a survey by the New York Hedge Fund Roundtable, 77% of its members say marijuana is “an area they would consider investing in.”
Our job is to get there ahead of them. So stay tuned for more insight on how to do that.
All the best,