Red, Blue and… Green?

Last week’s Presidential election showcased the fact that we are a country divided between Red and Blue. However, over the last few elections, voters across much of the nation have uniformly agreed on one highly contested issue – easing marijuana laws. In just the last few elections, all but seven states have reduced regulations in some form or another. Time will tell whether this is a full move towards legalization, decriminalization, medical use only, or both.

November 9, 2020

In 2020, another four states moved in this direction as well; Arizona, Montana and North Dakota fully legalizing the country’s favorite herb. New Jersey passed a vote to conditionally approve recreational use, pending state legislation. Oregon took this a step further by decriminalizing hard drugs, such as Heroin, Cocaine, Meth and MDMA.

Maybe this begs the question, “What were they smoking?!”.

One interesting challenge these states have faced is managing around what is still a federally illegal activity. In my home state of Massachusetts, anyone of age can enter a dispensary and partake if they want, so you might be surprised to hear this is a 100% cash only business. A side effect of legalizing marijuana is the subsequent boom in personal security. Because banks are subject to federal legislation, they cannot accept deposits from cannabis companies and local dispensaries are being forced to hoard cash, using storage units instead of bank vaults to pile up cash, and hiring armed guards and private security to watch over these makeshift “vaults”, 24/7.

For those of you who have seen Breaking Bad, you’ll know what I mean. And we’re not blowing smoke here, this is a real problem for these companies.

We have previously written about the mind-bending highs seen in some popular pot-stocks like Tilray (TLRY), Aurora Cannabis (ACB) or
even Canopy Growth (CGC) which was purchased by the alcoholic beverage distributor Constellation Brands (STZ) a few years back. However, despite the legalization efforts over the last few years these stocks have gotten absolutely smoked. TLRY for example, after an initial IPO boom, has lost over 95% of its value.

These companies are facing difficulty passing profits onto shareholders without running their “dirty” money through federally regulated banks, making it hard to envision a way that investors can partake in the benefits of marijuana legalization like citizens can. Until that path becomes clearer and there is a joint effort to legalize marijuana on a federal and state level, we prefer sticking to more traditionally trustworthy investments.

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