Extinction Level Event

  • The industry where 90% of the players will fail
  • But, oh, those other 10% will be lucrative!
  • Oil yawns at coup attempt (but don’t call it a coup)
  • Waiting on the Fed… strong Apple… weakening manufacturing
  • Handoff from one emperor to another disrupts Japanese ATMs
  • The missing link between China trade talks and Iran sanctions
  • Sacrificing freedom for security, then and now

Imagine investing in an industry where one of the leading experts says “the extinction rate will be 90% in the next year.”

“I absolutely believe,” says this individual, “this marketplace will not look the same — it will not have the same set of players, it won’t have the same set of rules — a year from now.”

Sounds risky, no? Something you’d want to avoid at all costs, right?

We’ll tell you who this individual is in a moment. For now, we turn to one of our own experts.

“Over the next five–10 years 90% of all pot companies will fail,” says our penny pot stock authority Ray Blanco.

Ray was early to the pot party — finally persuading The 5 to abandon its long-standing skepticism about the cannabis sector in 2016.

Since then, his premium advisory Penny Pot Profits has delivered gains including 125% on Innovative Industrial Properties (a cannabis real estate play)… 155% on Cronos Group… even 404% on Canopy Growth.

But the industry is maturing. As Ray predicted at the start of the year, the sector is due for a shakeout — not unlike the dot-com shakeout of two decades ago. “It’s normal to see leaders take the reins as an industry matures,” he said. “Amazon.com survived the dot-com bubble — Pets.com (and scores more) didn’t.”

It’s time to get choosy with pot stocks… and you need look no further than California for proof.

“Many of California’s pot growers are facing extinction,” says Ray.

The reason? Same reason that poses the biggest threat to any small business trying to grow — taxes and regulations.

Yes, recreational marijuana became legal in California on Jan. 1, 2018. But six months later, a regulatory debacle hit California’s cannabis sector. Retailers found themselves sitting on scads of product that suddenly wasn’t compliant with state regulations.

Back to the expert we cited at the top today: “The July 1 deadline of last year was probably our most visible extinction event,” says Jackie McGowan of the Sacramento-based firm K Street Consulting, “and I believe that term was coined a little after we realized how severe that impact was.

“The backlog of testing facilities was one that many smaller manufacturers were not able to endure. We probably experienced that jam for five weeks, and we’re sure that put a lot of small operators out of business.”

And just wait till July 1 of this year. Two months from today, California cannabusinesses must come into compliance with the California Environmental Quality Act.

“In brief,” writes Christian Britschgi at Reason, “CEQA says that any project with the potential to change the physical environment of the state and which will undergo discretionary review by a government body must submit extensive studies to assess potential environmental impacts that might need to be mitigated.”

As a practical matter, the law — signed by Gov. Ronald Reagan in 1970 — requires any construction project to undergo environmental review. And even if the project passes review, the law gives third parties the right to sue if those third parties feel local governments didn’t give the project enough scrutiny.

One environmental lawyer and cannabis consultant calls the law “the silent killer.”

Then there are the taxes — which as we’ve mentioned before are so onerous, the black market still thrives.

“In San Diego,” Ray Blanco tells us, “distributors from outside municipalities who deliver to retailers within San Diego’s city limits have to pay up to 5% of the marijuana gross receipts tax. This is on top of already paying the city and county taxes where the distributor is headquartered.

“That means growers and distributors are getting double-taxed by San Diego to fulfill orders to customers there.”

California’s tax regime has become so oppressive that a firm called Golden Goddess — which operated successfully for 12 years under California’s medical marijuana laws and generated $180 million in sales in 2016 — is now in danger of going out of business.

“Most cannabis companies face a long uphill battle against clawback regulations, a still booming illicit market and ridiculous double-taxation scenarios,” Ray sums up.

Little wonder that consultants like McGowan are talking about “extinction events.”

But don’t get the wrong idea. The door hasn’t closed on opportunities to make big money in cannabis. You just have to be more selective — or turn to an expert like Ray who does all the legwork to, shall we say, separate the chess from the checkers.

One company in particular he sees not only surviving but thriving. His research has him absolutely convinced… although at one point along the way, he wasn’t sure if he’d live to tell about it.

Check out the hair-raising tale here, introduced by Ray’s publisher. Don’t wait, either — this is time-sensitive information that’s coming down at midnight tonight.

Markets are in suspended animation this morning, awaiting white smoke to emerge from the Marriner Eccles Building in Washington, D.C.

By the time you read this, the Federal Reserve will have issued its latest “policy statement” and Chairman Jerome Powell will be working his mouth.

We’ll follow up with anything important tomorrow, but this much we know for sure: The Fed will not accommodate the president’s latest request.

Yesterday he tweeted that “We have the potential to go up like a rocket if we did some lowering of rates, like one point, and some quantitative easing.”

Since December, the fed funds rate has been parked in a range between 2.25-2.5%. Presumably he meant one percentage point and not one basis point (1/100th of a percentage point)… but precision with language has never been this president’s hallmark. (Remember when Rush Limbaugh would say, “Words mean things”?)

Whatever. Seems everybody’s got opinions now about where interest rates should be — the Fed, the president, randos on Twitter. The idea that interest rates should be the province of a free market? How quaint…

In the meantime, the major U.S. stock indexes are treading water — all in the green, but barely. Gold has popped a bit in the last 24 hours, back to $1,281.

➢ The standout earnings report is from Apple — a favorite of our Zach Scheidt. AAPL posted its first consecutive drops in quarterly sales and earnings in more than two years. But the numbers weren’t as weak as analysts were expecting; Apple appears to be successfully transitioning from dependence on iPhone sales to reliance on subscription services like Apple Music. At last check, AAPL is up 7% on the day

➢ But the major economic number of the day is a stinker. The ISM manufacturing index for April rings in at 52.8 — way below expectations and the weakest reading since November 2016. The new-orders component of the number slid nearly six points to 51.7, and the employment component tumbled five points to 52.4. Reminder: Numbers above 50 indicate growth; below 50, shrinkage.

That said, one month never tells the whole story…

A barrel of West Texas Intermediate crude fetches $63.67 this morning. The price has barely moved the last 24 hours despite an American-backed coup attempt in oil-rich Venezuela.

Oh, pardon us. National Security Adviser John Bolton says we shouldn’t call it a coup.

“This is clearly not a coup,” he protested to reporters while the coup attempt was in progress yesterday. “We recognize Juan Guaidó as the legitimate interim president of Venezuela, and just as it’s not a coup when the president of the United States gives an order to the Department of Defense, it is not a coup for Juan Guaidó to try and take command of the Venezuelan military.”

Heh… As we explained five years ago when there was a coup in Thailand, actually calling a coup a coup would compel Washington to suspend aid to the new regime. That’s the law.


There, we’ve done our bit for the cause of speaking in plain English.

And let’s not kid ourselves about why the Trump administration and many leading Democrats are united in the goal of Venezuelan regime change.

Bolton spoke in very plain English to Fox News at the end of January: “We’re looking at the oil assets…”

Anyway, the coup attempt had already fizzled by the time the market closed yesterday afternoon. Secretary of State Mike Pompeo was left to fume on CNN about how it’s all the fault of the Russians and Cubans that Washington can’t have its preferred puppet government in Caracas. (Wait, isn’t this administration supposed to be the puppet government of the Russians? So confusing…)

Japan has a new emperor this morning… and it’s fouled up at least some of the nation’s ATMs.

Emperor Akihito has abdicated at age 85, citing his declining health; the reign of his 59-year-old son Naruhito begins today. As it happens, this is also Golden Week in Japan — an annual holiday in which many banks shut down for days.

The trouble with the ATMs began surfacing on Sunday. From the website SoraNews24: “Japanese Twitter user @RIORAO stopped into a branch of convenience store chain Lawson, where he used the in-store ATM to deposit some cash into his bank account. However, the machine informed him that due to a banking holiday, the funds wouldn’t show up in his account that day.

“Instead, according to the photo @RIORAO tweeted, the funds would be transferred on May 7, 1989.”

No, the ATMs are not stuck in a 30-year time warp. It turns out many financial and legal documents in Japan rely on a dating system going back to an era before Japan opened up to the West. The reign of each emperor has its own name. Under Akihito, the era was called “Heisei.” When he became emperor in 1989, that was “Heisei 1,” while 1990 was “Heisei 2” and so on.

But the imperial calendar reset to the “Reiwa” era today and not all the ATMs are up to speed. As the website explains, “While the Lawson ATM user display shows Western years, apparently its internal programming runs on the imperial calendar, and that’s where the time travel glitch gets triggered.”

Now you know…

“What am I missing?” writes one of our regulars, a Platinum Reserve member living the expat life in Latin America.

“On the one hand, the stock market seems to think that a U.S.-China trade deal is about ready to be signed, but on the other hand I read that the Iran oil exemptions are about to expire and that tomorrow the U.S. will take action against any country that continues to import Iranian oil.

“Given that China imports around a million barrels per day of Iranian oil, is this issue going to remain isolated from the negotiations on tariffs?

“It seems unlikely to me, but what amazes me is that I haven’t seen anyone else even put these two issues together. If China essentially says, ‘Up yours,’ and continues to import Iranian oil, I don’t see how Trump would feel at ease hosting a big signing ceremony for a tariffs deal at Mar-a-Lago. But maybe that’s just me.”

The 5: We put those two issues together, if only in passing, a few days ago when the Trump administration announced it was withdrawing the waivers on Iran oil sanctions.

Nor is that the only deal-breaker still out there.

Don’t forget that Meng Wanzhou — the CFO of the Chinese tech giant Huawei — is awaiting extradition to the United States on charges of violating Iran sanctions. (She’s free on bail in Vancouver for the moment.)

For reasons we laid out right after the news of her arrest was made public, the outcome of this case could turn the months-long chill of U.S.-China trade relations into a decades-long deep freeze. No one’s talking about that, either…

On the topic of potential tariffs or quotas on imported uranium (who knew it would stir the pot in our mailbag the way it did?), a reader writes…

“Dave, I hate the waste, fraud and unintended consequences of government bureaucracies as much as you, but our national security currently depends on a stable source of uranium, both for our base power supply and for military purposes.

“I don’t see that we have a great choice in the government’s involvement to remedy the situation.

“With Russia and other planned economies heavily subsidizing their uranium, we can’t just let the free market fix things; our domestic production would be bankrupt.

“I therefore support intervention to secure our domestic supply to at least a base level.

“Even Canada cannot be trusted for all of our supply when it comes to our national security.”

The 5: Ah, yes, it always comes back to “national security,” doesn’t it? We must grit our teeth and submit to a significant level of top-down economic control because national security, dontcha know?

This is the argument “conservatives” have been making since — well, ever since the early years of the Cold War when the Republican Party purged its truly conservative Bob Taft wing.

“Conservative” icon William F. Buckley Jr. made it plain in 1952: “… we have got to accept Big Government for the duration — for neither an offensive nor a defensive war can be waged, given our present government skills, except through the instrument of a totalitarian bureaucracy within our shores.”

Thus, he went on to say, we must endure “large armies and air forces, atomic energy, central intelligence, war production boards and the attendant centralization of power in Washington — even with Truman at the reins of it all.”

And when the Cold War began winding down 30 years ago and Reagan’s U.N. ambassador, Jeane Kirkpatrick, mused about how maybe we could once again be “a normal country in a normal time”… well, it was much too late. The military-industrial complex had long since metastasized into a parasitic colossus, relentlessly extracting resources from the productive economy.

As we approach the third decade of the 21st century, it’s metastasized further into what CIA veteran-turned-truth-teller Ray McGovern calls the MICIMATT (pronounced Mickey-Matt) complex — encompassing the military, industry, Congress, intelligence, media, academia and think tanks.

But we need all of that so we can continue living as a free people, right? Oh, wait…

Best regards,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. Ray Blanco calls it “the biggest cannabis industry disruptor we’ve potentially ever seen.”

The profit potential is immense, but time is short. This opportunity comes offline at midnight tonight.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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