If there is one observation that could be made over the last two weeks is that the MMJ sector giveth and the perception of bad news taketh away. This week we saw amendment initiates pass and fail in DC, Alaska, Oregon, Guam & Florida (the fail), but what were we seeing before November 4th? A run up…
Anticipation and perception are gasoline in this sector with news, good or bad acting as the fire to ignite wild runs to the upside or downside. Before we can get into this lets discuss some brief history making catalysts that propelled this sector to new heights or rekindled the flames of renewed interest.
-The MedBox RUN-
In November of 2012 was recommended as a stock to buy as a way to invest indirectly (ancillary) into the marijuana industry by Market Watch I believe. Share price was roughly $6 at the time and within 48 hours the stock touched a high of $215! The fact that the share volume was only 1,470 was completely ignored because all of a sudden everyone was talking about the marijuana sector and investing in it. Thank you Medbox!!! In January/February Medbox had another big run after it settled and somehow birthed this sector inadvertently. All of a sudden companies like HEMP, MJNA, and PHOT all had dramatic spikes. MJNA for example went from the teens to .50 high and settled at .42. Hemp and PHOT had similar 100% plus gains, what happened next was all too familiar as a bubble had formed and all bubbles pop.
In the next few days after these epic Marijuana stock runs the pps dropped back down either dramatically back to previous levels in the next few days or in the case of MJNA in the next few months, but the trend for the sector as a whole was pretty clear; boom, then bust/deflation. The market as a whole traded sideways with a slight decline until late August when Eric Holder rekindled the flame.
-Department of Justice and Eric Holder-
On August 29th 2013 Eric Holder said that the DOJ would not be allocating resources to prosecute states that had Marijuana laws so long as they adhere to 8 key points or rules that go as follows.
- The distribution of marijuana to minors;
- revenue from the sale of marijuana from going to criminal enterprises, gangs and cartels;
- the diversion of marijuana from states where it is legal under state law in some form to other states;
- state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
- violence and the use of firearms in the cultivation and distribution of marijuana
- drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
- growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands;
- preventing marijuana possession or use on federal property.
SImple enough right? Well that had given renewed interest in Marijuana and all of a sudden people that were on the fence about investing were feeling like the risk had diminished and suddenly they were reading up on Washington and Colorado going fully recreational. To be honest this is exactly what got me investing in Marijuana and in case you are wondering I bought PHOT or Growlife at .04 and sold it at .40 in January for a tidy 1000% gain.
For the next few months leading up to January 1st the marijuana sector was building up as were the PPS of numerous companies. Then it finally happened.
-Colorado goes fully recreational-
Media attention went nuts and suddenly everyone wanted in. The sector had officially exploded and gains were the type we saw when Dot Com happened. Dot-Bong made millionaires in 60 day periods, but just like before it was short lived as the Marijuana market is cyclical. Look at any index with prices from 2011 to now and you will see for yourself. It’s boom and bust, boom and bust.
Now that we had a brief history lesson what are the catalysts now you might ask after the last four we had this week?
California & other states go recreational-
California is the biggest state in the united states population wise and they are also one of the most important marijuana movement wise. This will happen and when it does it will be a windfall for the state as well as for the investors tied to the picks and shovel companies that will benefit.
Florida goes Medical-
It was a bummer it didn’t pass, but the south is key to the country and even though we lost with a 57% margin in favor it can be taken up by the legislature in the spring of 2015.
Rescheduling of Marijuana-
The rescheduling of Marijuana is a must as it will change the landscape completely as to how the federal government looks at marijuana. It will eventually lead to the next major catalyst.
Federally Legal Weed-
This is going to happen as prohibition can only last so long. I am of the opinion it will happen in a few years once states go recreational or medical in order to get out of debt and collect a fair amount of tax revenues. That is the dream I suppose, but it is still unclear how the landscape will change in the sector investment wise.
As each of these catalysts become observable on the horizon you will see run ups. These runs will last only as the media attention is focused on how much money is coming in etc. If one of the major catalyst gets implemented on the 1st of the year there is a 3.5 month window historically in positive price action. Don’t get greedy and remember that if you were making 30% with a mutual fund per year you would be completely stoked! You will get 50,80,500% here and there, but take profit and try and observe how the markets react to coming news as it is the key to getting in and out… Cheers
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