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The Marijuana Manifesto’s Jimmy Mengel Talks Cannabis: Shifting Politics & Key New Markets Opening Up

November 29, 2018

Gerardo Del Real: This is Gerardo Del Real with Small Cap Stock Digest. Joining me today is the Managing Editor for Outsider Club, Investment Director of the personal finance advisory The Crow's Nest and cannabis stocks advisory The Marijuana Manifesto, Mr. Jimmy Mengel. Jimmy, how's it going?

Jimmy Mengel: Thanks, Gerardo. That was a wonderful introduction.

Gerardo Del Real: Hopefully it was accurate. Listen, you and I haven't had the opportunity to speak on the record since late July. A lot going on in the cannabis space, a lot to get to. I'd love to start by getting your overall take on what you see as the big difference between late July and now and everything that's transpired. And then let's get into some specifics here in a bit.

Jimmy Mengel: Yeah, for sure. It's a wild ride as it has always been. I'd like to say I'm not surprised. But I continue to be surprised every day I try to cover this stuff.

I guess the big news this year was Canada legalizing marijuana and that coming into play.

Gerardo Del Real: Absolutely.

Jimmy Mengel: It so happens that I was in Vancouver the day that marijuana was legalized in Canada, which I thought would be a huge celebration, this big breakthrough. That didn't appear to be the case. Where we were in Vancouver, you could not buy marijuana anywhere. There was one or two shops hours away. I think due to a lot of the regulations in Canada and how hard it is to actually sell the product, even though it's legal, it kind of landed with a thud. And I think that reflected in stock prices.

So, you would think marijuana goes legal and then you're off to the races. But it's still caught up in that government bureaucracy, which I think led a lot of the big players to take a little bit of their money out and the prices have reflected as such.

Gerardo Del Real: Anytime there's a megatrend, Jimmy, there's going to be volatility. I think anybody that dabbles in the space is comfortable in acknowledging that. There's going to be wild rides up and wild rides down. The one constant – and this is something that we've seen with all megatrends – is the surge of big business getting into that trend and trying to capitalize off of it.

The cannabis space is no exception. There has been a recent surge of big business getting into cannabis and wanting to get into it. Can you talk a bit about that and just kind of how you see that developing?

Jimmy Mengel: Yeah, absolutely. And I think that will be the next big driver for the market. We saw it last year, with Constellation throwing down a ton of money to Canopy Growth, and their stock went crazy as a result of that. So, I think you're going to see a lot of old-style businesses finally coming to Jesus here and recognizing that marijuana is such a trend that it can't be ignored.

So, beverages are a big thing. Big Pharma is going to be a major thing. And I think one of the sectors people aren't really talking about is big tobacco. Because as you well know, people are smoking less and less cigarettes every year. I think it’s down 5% to 10% a year. So they have to fill that up with something else because people still want to smoke something.

Gerardo Del Real: Absolutely. No pun intended, but it's a natural hedge for the tobacco companies. Right?

Jimmy Mengel: Absolutely. They really need to come up with new businesses. I think if you look at the marijuana market versus the tobacco market, big companies like Altria would be crazy not to be jumping into this. And I've joked about it before. Even five, six years ago I said, there's going to be a Marlboro Green coming to market before you know it. They should do very well with that kind of consolidation and buying up some of these assets.

Gerardo Del Real: Do you think the Marlboro Man will lose the rope and the hat, if it’s Marlboro Green?

Jimmy Mengel: Well, maybe it will be a hemp rope.

Gerardo Del Real: There you go, there you go. So, getting serious again for a minute here, Jimmy, you are on the campaign trail this summer if I understand that correctly. It's a perfect segue to get into the politics shifting here in the U.S.

Tell us about your experience and let's talk politics and the shift here in the United States in regards to cannabis.

Jimmy Mengel: Well, I think it's been very interesting. Very briefly, I was on the campaign trail with Gary Johnson who was one of the first Governors in the country to recognize that marijuana is not only a medicine but, as a libertarian, something people should have the right to do, regardless. It brings jobs, it brings tax dollars, it doesn't really hurt anyone.

Spending a few days with him was pretty enlightening because he basically risked his political capital legalizing marijuana when it was not a popular thing, in the late '90s. So, it's interesting to see that play out in Senate campaigns. It's now playing out nationally with political campaigns and there's very few people that are fighting against legalization of marijuana. It's not politically popular anymore, so that has flipped.

What I do think is interesting is, for one, our Attorney General Jeff Sessions – our previous Attorney General – has been kicked out. And he was really the biggest impediment to legalizing marijuana because he's always been against marijuana. So, I'm interested to see who Donald Trump will name as his new Attorney General and if that is the case and it’s someone that's more open to marijuana legalization, then I would say we're going to start legalizing a lot more counties and states. And then pretty much being off to the races in terms of legalization in the United States across the board.

Gerardo Del Real: What do you think, Jimmy, are going to be the key markets that open up? Let's assume that you're correct, and I believe you are, in regards to legalization and decriminalization here in the U.S. If that becomes the status quo, what are going to be the main markets that are opening up?

Jimmy Mengel: The one I'm really looking at is New Jersey, and they've been on the cusp for a while. And it actually feeds into some of the Attorney General talk because Chris Christie was in charge for quite a while and he was very anti-marijuana.

Gerardo Del Real: Yes, he was.

Jimmy Mengel: He's also on the shortlist for Attorney General. So, I'm a little bit worried. If Chris Christie is named Attorney General, that could really just put us right back in the Jeff Sessions position.

However, New Jersey itself looks like it is totally on track to legalize recreational marijuana. And I think New Jersey is a very interesting state because not only do you have New Jersey, which is large enough but that would be the feeder to New York and then seeing the dominoes fall. So, if New Jersey can legalize marijuana by next year and they have a very interesting gubernatorial candidate that said openly he's going to do that. I think you see New Jersey go, and then I think New York is not far behind. Those are the big guys.

So, you have your billions of dollars flowing into those areas and that should legitimize the industry. Obviously, that's where Wall Street is. That's another conversation as well.

Gerardo Del Real: And these are states that need the tax revenue, right? I mean, a lot of this isn't motivated by government wanting to honor people's individual rights. A lot of this is motivated by the fact that these states are broken, need the tax revenue, correct?

Jimmy Mengel: Yeah, I think so. It's interesting to see people's rationales for these things. But when you start talking about tax revenue, you start talking about American jobs, it's hard to argue. Historically it's been a Republican issue where, "Oh, it's a moral thing, we can't have marijuana being legal." But now that the money is flowing in, it's been a totally different story. It's a politically popular opinion now and they're like, "Okay we can bring in American jobs.” As far as California goes, almost a billion dollars in tax revenue a year. And then it's a much easier pitch to make to your more conservative base.

Nothing has been more interesting than former Speaker John Boehner joining the board of Acreage Holdings, and now going out and pitching marijuana. He said in the past that it was a scourge and he would never support it. I think what it comes down to is that money talks and he realizes, "Hey, I can make a ton of money in this industry.” People are coming around to it. It's not a political third rail like it used to be.

Gerardo Del Real: But there's also the other side about the amount of resources that can be allocated elsewhere, right? I mean, this frees up police departments to go fight real crime. Look for rapists and murderers and thieves as opposed to trying to incarcerate. And then the toll that takes on both government and the people that are incarcerating for a gram of marijuana. Would you agree with that, Jimmy?

Jimmy Mengel: Oh, yeah. It's basically the prison industrial complex. And we've been putting people in jail for far too long for minor drug charges. A good anecdote here is I have a company that I watch. They've taken prisoners who are incarcerated for marijuana charges, low-level drug charges, and now as part of their rehabilitation they've set up factories where these people can come out, use their expertise in the industry, and they teach them how to farm and how to grow marijuana ...

Gerardo Del Real: Insane.

Jimmy Mengel: ... which is painfully ironic. Why are we locking people up, paying for this and ruining lives when we could just turn them into entrepreneurs? I think that if you look at the numbers, it's outrageous how many people are in prison for minor drug charges. And I think that is a major issue with this entire thing, where you need to have people out of jail, working high-paying American jobs, and we all benefit.

Gerardo Del Real: Couldn't agree more, Jimmy. The last time we spoke we talked about the volatility. We also asked, for the speculator that's looking from the outside in, whether or not they had missed the boat on marijuana stocks. A lot of people say it's a deflated bubble. Where do you see it moving forward? Are there still opportunities to make money in the space? And what should people be looking for?

Jimmy Mengel: Yes, it's a very good question and I get it all the time. So, a little background on me. I had my readers invest in Canopy Growth, which is now the biggest marijuana company in the world, at around $1.60. And now it's trading in the $30s. So, I think that initial boat of outrageous 10,000% gains, that may not be as likely but I think based on what we talked about with the United States for instance, entirely new markets are opening up every single day.

So you really need to look at places like Michigan that just opened up for recreational use, or places like Florida who are really growing their medical marijuana, or Arizona. You start looking into new markets and if a business did this before, and then all of a sudden, they're able to just blow it open, I think you'll see similar gain.

So, I don't think it's at all too late to invest in marijuana. I think it's probably going to be more interesting as the years go by. And you have more states opening up. And you also have more exportation. So, a lot of these companies are very, very shrewd at growing marijuana, especially some of the Canadian companies. So, they know how to do it, they have a process and then they go to someplace like Germany who does not have a process at all, and they are able to export, get licenses and then all the sudden you're selling millions of marijuana in Germany or through the rest of Europe, and you're going to see plenty of places to sell marijuana.

Gerardo Del Real: Fantastic. Jimmy, it's fascinating as always. How can people get ahold of you if they want to vet your work and want to see what you're about?

Jimmy Mengel: You can go to an outsiderclub.com. I write about marijuana pretty frequently. I also run a newsletter called The Marijuana Manifesto that focuses on this every single week. And it also kind of targets some of the smaller companies like what you're talking about. If you want to see those big old marijuana gains, you got to look at the small guys that may be bought up by the bigger guys. So, I deal with that a lot.

And then I also run advisory called The Crow's Nest, where I kind of started this entire marijuana thing five years ago with Canopy Growth and a few other companies. So, go to outsiderclub.com and you can get all sorts of resources for marijuana investing.

Gerardo Del Real: You're a busy man, Jimmy. Thank you for taking the time today. I really appreciate it.

Jimmy Mengel: Always a pleasure, Gerardo.

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