- Marijuana legalization’s next phase: Voters hand baton to lawmakers
- The $3.4 trillion reason the legalization wave will continue
- India’s war on cash — new and improved with an all-out surveillance state
- Wal-Mart’s curious earnings… the trouble with nations’ competitiveness rankings… Chinese demand for U.S. homes cools… and more!
Eight down, 42 to go. The recreational marijuana train is gathering speed.
It began in 2012 with Colorado and Washington. Then came Oregon and Alaska. Last November, voters in four more states approved the recreational use of pot — Massachusetts, Maine, Nevada and the big one, California.
In the next phase of legalization, voters will hand the baton to state lawmakers. Legislators in 17 states have introduced legalization bills this year. “We now have the wind at our backs,” says Rhode Island State Sen. Josh Miller.
For three years, he introduced a legalization bill — only to see it die in committee every time. But after the referendum in Massachusetts? “Seeing our next door neighbor legalize it should help us — a lot,” Miller tells the Los Angeles Times.
Yup. After all, it’s a half-hour drive out of state from nearly anywhere in Rhode Island. No reason to lose all that business, right?
It’s all about the money now. State governments need the tax revenue.
Many state budgets are still a disaster, even with tax receipts having recovered from the “Great Recession.”
Colorado brought in $200 million in revenue last year from marijuana sales. Washington State generated $256 million. That’s money for public schools that doesn’t have to be squeezed from another source. California expects to generate $1 billion once recreational pot becomes legal next Jan. 1.
Skeptics are coming around. In Rhode Island, for instance, State Sen. Ryan Pearson opposed previous legalization efforts. Not now. “It’s crept into New England, and we see it legal right next door,” he says. “Now it’s not a matter of if, but when, for legalization in this state… We should take the initiative to get this done right.”
Taxes from recreational marijuana are an easy source of revenue at a time when state and municipal budgets are at a breaking point.
State and local pension funds are in a $3.4 trillion hole, according to updated figures from Stanford Business professor Joshua Rauh — who’s been tracking the pension crisis for years.
Said a Financial Times piece about his most recent research last year: “In order to deal with the large funding shortfall, many cities and states will have to increase their contributions to their pension funds, either by raising taxes or cutting spending on vital services.”
State budgets will feel still more pressure depending on how Obamacare is reformed.
There’s a lot still to be decided… but one area where the Trump administration and the GOP Congress appear to be on the same page is “block grants” for Medicaid. Without getting into the weeds, block grants are a ruse under which Uncle Sam would slough many of Medicaid’s costs onto the states.
According to a study from the firm Avalere Health, the feds would save $150 billion over five years. Since none of the Obamacare reform proposals do anything to meaningfully reduce costs, that’s another $150 billion burden on state governments.
Under those circumstances, marijuana legalization will be an easier and easier call for state lawmakers to make.
And they’ll have the backing of the public. Don’t forget the long-term trend in the polling data, which we shared shortly before Election Day last year:
No, none of this means it’ll be a straight line up for the “penny pot stocks” we’re so enthusiastic about. But if you can ride out the volatility, you’ll be in fine shape: Don’t forget the legal marijuana sector is set to triple over the next five years.
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To the markets, where the major U.S. stock indexes are drifting higher into record territory. At last check, the Dow had crested the 20,700 level; one in every six names in the S&P 500 is touching a 52-week high.
The move up is accompanied by dollar strength, the dollar index up strong at 101.4. But that hasn’t done the usual damage to gold; as we write, the bid on the Midas metal is steady at $1,237.
Retailers are in the earnings spotlight, with Wal-Mart, Macy’s and Home Depot all beating estimates. The Wal-Mart numbers are interesting: Holiday sales in the United States were stronger than expected… but you can chalk up a lot of that to price cutting. Thus, gross profit margins were down 8%. The Street seems not to care, bidding up WMT shares 3%.
The big economic number of the day is the “flash PMI” reading of how manufacturing is performing nationwide so far in February. Numbers above 50 indicate an expanding factory sector. The reading came in at 54.3 — comfortably above the dividing line, but well short of expectations for 55.5. Hmmm…
Turns out India’s cash ban is part of an even more ambitious project — corralling the people into a sweeping system of digital surveillance.
As we’ve documented from the get-go last November, India’s government banned the most commonly used bank notes. Citizens had to bring their cash to a bank, where it could be converted into other denominations — of which there weren’t enough on hand — or deposited in a digital account. The bank lines were staggering.
At the time, the authorities said it was all about cracking down on “black money” cash transactions that can’t be taxed.
But a few weeks later, Prime Minister Narendra Modi laid out a more long-term game in a country where 90% of all transactions were made in cash: “It’s correct that a 100% cashless society is not possible. But why don’t we make a beginning for a less-cash society in India? We can gradually move from a less-cash society to a cashless society.”
Combine Mr. Modi’s ambitions with the fact the Indian government has already collected fingerprints and iris scans on nearly everyone.
In a story almost no one noticed on a U.S. holiday, The Wall Street Journal’s website described a program called “India Stack.”
“By allowing developers to incorporate use of government identification records in their commercial websites and apps,” says the story, “the initiative envisions Indians — with mobile phones in hand — using iris and fingerprint scans to sign up for insurance, invest in mutual funds, receive health care subsidies and verify their identity for school examinations.”
Gee, we were understating matters last week when we described “an enormous experiment on 1.25 billion human guinea pigs.”
As we mentioned starting last month, the cash ban is an initiative of USAID — the United States Agency for International Development, working in conjunction with the major credit card companies, the Gates Foundation and other, ummm, interested parties.
Bill Gates shows up early in the Journal story about India Stack, touting the venture “something that had never been done by any government before, not even in a rich country.”
We’re not sure what it’s going to take to make people pay attention to Jim Rickards’ urgent “blueback” warning… but rest assured what started in India won’t stay in India.
“Dave, a big problem with these sorts of assessments and rankings,” writes a reader about nations and their economic competitiveness, “is that they fail to take into account the vast differences in the 50 states (to say nothing of the swamp on the Potomac).
“I normally work in just three or four states, and even between them, there are significantly different amounts of economic freedom and individual liberty and difficulty in starting up a business. I have just started a rare project in a certain unnamed Great Lakes state east of my normal area of operations, and was reminded just how bad some states (and certain counties in those states) can be, relative to what I’m used to in places like Wyoming and South Dakota.
“The lack of freedom in places like New York, California, Massachusetts, Illinois and New Jersey drags the listing for the 50 states overall way, WAY down.”
“You mentioned homebuilder sentiment cooling down last week, but did not detail any probabilities as to why,” writes a California reader.
“I can give you one — China!
“Beijing has passed even more regulations to stop the money outflows. They are still limited to US$50,000 per person per year and are also limiting how much money from any single bank can flow to any single overseas account number. Only way around that is to use multiple banks and accounts.
“That’s not all, though. It is now expressly prohibited (not sure how well enforcement is going yet) to transfer funds to another country for real estate purposes! That includes funds to pay any mortgage payments on existing properties. Oops.
“There are now relatively few approved reasons — two of which are ‘necessary medical expenses’ and to ‘pay tuition’ if they have their kids in an overseas school. The later requires actual proof that a) they actually have kids and b) those kids are enrolled in a legitimate overseas school.
“Will these changes stop all the outbound flows into U.S. real estate? Probably not, but from what I hear from my Chinese wife’s friends and family in Beijing, it’s definitely causing problems already. Especially among those needing to make mortgage payments.
“California housing prices have been in decline in many areas since the original low-fanfare announcement. If anyone does not read China Daily, People’s Daily or Xinhua, they would have likely missed it.”
The 5: Good point about Chinese capital controls. We’ll have more to say about the slow-motion Chinese train wreck as the week goes on.
On the topic of marijuana investing, a reader writes: “I subscribed to Technology Profits Confidential in December and opened a trading account shortly after.
“I made a $1,500 investment and so far have an array of about 25 of these penny pot stocks. I’m ahead slightly over $100. My only question is why this market is flatlined and dragging for marijuana stocks when they are getting all of this good play and media?”
The 5: Thanks for bringing us your business. One factor at play right now is red tape. “Companies are dealing with licensing, permits, etc.,” says publisher Aaron Gentzler. Editor Ray Blanco has run across this phenomenon over and over talking with companies based in California and Nevada… and even in Colorado, where recreational marijuana’s been legal for years.
As Aaron explains, “You need to figure out how to react to your specific state’s environment. How is your business going to function? How are you going to pay taxes, process payments, etc., etc., right down the line.”
You’ve done all the right things — especially diversifying into a bunch of different names. Not every penny pot stock is going to be a winner. But if you spread around your investment capital, you dramatically increase your chances of bagging the monster gain that will make you forget about the laggards.
Yes, it might not be fun to sit and wait — but your patience will be rewarded.
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. On the other hand… if “buy and hold” isn’t your speed, Ray Blanco recently took the wraps off a system that affords you a shot at jumping into a penny pot stock just as it’s getting hot… and jumping out just as it starts to cool off. In between, you make 10 or even 20 times your money in a matter of weeks.
We caution… Not everyone’s going to have the stomach to handle these trades. (Although we understand pot can ease nausea, heh.) But that’s a call you’re going to have to make for yourself. Ray introduces you to the possibilities at this link.
