posted on 07 January 2017
by Michael Robinson, Money Morning
Article of the Week from Money Morning
By any measure, 2016 was a great year - a watershed, in fact - for the tech- and pharma-heavy cannabis niche.
For instance, ever since Sept. 2, when I sent my paid-up Nova-X Report readers the 30 pot stock recommendations in my "weed investors' bible", The Roadmap to Marijuana Millions, we've seen incredible gains all across the market sector.
And what had been a phenomenal year got even better with a massive victory: In November, voters in five states (read, five juicy untapped markets) voted to legalize medical and recreational marijuana. That boosted the cannabis niche's growth prospects immensely. Remember, this is an investing arena that was already expected to grow by more than 31% a year until at least the early 2020s.
But… the buoyant marijuana markets took notice when the president-elect tapped Sen. Jeff Sessions (R-AL) to be the next U.S. attorney general. The nation's would-be top cop is known for his, shall we say, "retrograde" views on marijuana - legal and otherwise.
That news cast a great deal of uncertainty on investments with an otherwise vertical trajectory.
So, naturally, pot stock investors are wondering what the future might hold for this high-growth, immensely profitable investing niche.
Well, I'm going to show you a glimpse of that future right now. It still looks as bright and profitable as it ever did…
There's Not Much Sessions Can Do to Dampen Cannabis
Like I said, Senator Sessions isn't known for his bullish, forward-looking view of marijuana. In fact, he's an outspoken critic.
In an April U.S. Senate meeting, for instance, Sessions said:
He also said in the same meeting that "good people don't smoke marijuana".
Still, it's quite a stretch to think that, even in his new position of power, Sessions will be able to effect the kind of massive public policy overhaul it would take to revoke legalization.
Currently, marijuana is illegal under federal law. But because of a congressional rule from 2014, the U.S. Department of Justice (DoJ) is not allowed to use funds to interfere with the implementation of state cannabis laws.
Also, a recent Aug. 16 court ruling states the Justice Department can no longer prosecute medical marijuana businesses where the defendants are following state laws.
Fundamentally, this means one certain thing: Marijuana legalization is determined by state voters right now.
And it's highly likely to stay that way.
I'm confident of that assertion because of what Donald Trump himself has been telegraphing so far.
From a policy perspective, the president-elect is on the record saying marijuana policy is something best left to the states.
What's more, the president has no power to nullify state laws, and only Congress has the power to pass federal laws. As it stands, Congress's attitude toward marijuana is likely to reflect the U.S. electorate.
And that view has changed radically over the last 20 years.
Most Americans - about 60% of them, in fact - now favor legalizing marijuana according to recent polls. With legalization's popularity continuing to climb, it's highly unlikely Congress will vote against legalization going forward.
In fact, there are several bills working their way through Congress that could further ease legalization.
For example, the Marijuana Business Access to Banking Act would update federal banking rules to resolve conflicts between federal and state laws and allow banks and credit unions to provide services to legitimate marijuana businesses.
So the truth is, despite the juicy, scary headlines touting the "new Drug War" Trump and Sessions are "planning," the debate over marijuana legalization is larger, by far, than one presidential administration.
In fact, considering all of these political developments, there's one extremely bullish reason investing in marijuana stocks will remain profitable even with Sessions as Attorney General…
My 2017 Cannabis Outlook: Extremely Bullish
President-elect Trump ran on the platform that he is a successful businessman.
And as a businessman, he'll have a hard time ignoring the massive amount of money legal marijuana companies are making.
In 2015, Colorado alone collected more than $135 million from fees and taxes from such businesses. And it uses that money mostly for school construction projects.
That's just a taste of the juicy, rich revenue that's filling the pipeline right now…
California, which has a relatively long history of legalized medical marijuana, just approved legalized recreational marijuana. This could become the best example of how much money legitimate businesspeople can make here.
At this point, it's impossible to know marijuana's full economic impact on California, but it's safe to say it will be in the billions of dollars. Other states will look at California's success in rolling this out as their model for legislation.
And as more states legalize recreational marijuana, the profits will be enormous. In 2016, legal marijuana sales are expected to reach $6.7 billion. By 2020, sales are expected to climb to $21.8 billion.
That's a 225% increase in just four years.
Now, that doesn't mean there aren't risks involved…
Most marijuana stocks aren't listed on major indices because they don't meet the qualifications. Most are listed as penny stocks - an investment vehicle that's notoriously risky, but that can be immensely profitable when you do your research.
As I mentioned earlier, I did the hard work of researching these shares for my paid-up Nova-X Report readers, so it wouldn't really be fair to give my entire watch-list away.
But I can show you how to easily find the right pot stocks to buy (and how to buy them) for the biggest profit potential in 2017. This is a great time to buy, too. Along with most other shares, cannabis and related stocks went ballistic during the "Trump Bump" right after the election.
But the niche has cooled off a bit, offering some attractive entry points for the savvy investor.
How to Find the Best Pot Stocks (and What to Do When They Double on You)
To some extent, finding a good cannabis stock is like finding any other "Screaming Buy" stock.
You want to look for companies with strong leadership, and if you find one where the leaders are looking to consolidate and merge, so much the better.
Beyond that, it's well to look for cannabis companies that are exposed to both retail medical and retail recreational sales, with a diverse, versatile product range. In the pot arena, this could mean a company that offers edibles, or oils, like so-called "hash oil," or highly sought-after strains. These days, there are Android and iOS apps that offer exhaustive lists of the most popular cannabis strains, with names like "Sour Diesel," "Bruce Banner," and "Durban Poison."
Remember, marijuana legalization is gathering steam across the entire continent, with (successful) movements operating in the United States, Canada, and even Mexico. Look for companies that operate in two or three of these "emerging markets," and you'll find a strong player worth owning.
And finally, when investing in the cannabis niche, it's going to pay to remember our plan for handling truly huge gains.
If you've doubled your money, we typically recommend a "free trade." When a stock you own gains 100%, you sell half of your holdings. That covers your original investment. Because your costs are covered, what remains is pure profit - hence the "free trade." You're playing with the house's money.
You then adjust your trailing stop to your entry point so no matter what happens, you walk away with a 50% gain.
Now, if the stock continues to take off, we recommend selling a quarter of your original stake - or half of your remaining stake - when the stock doubles again.
After that, you let the final quarter stake ride, without any kind of hedging or "insurance" whatsoever. Because your costs are covered, you no longer have to worry about "trailing stops" on this particular investment position.
Now, this is just what we typically recommend for handling gains of this magnitude. Ultimately, how you decide to handle a stock that has doubled is up to you.
And with the way 2017 is shaping up for weed investing, it's likely you'll have several big winners on your hands.
Special note: Michael makes sure every single Nova-X Report reader gets his "weed investors' bible," The Roadmap to Marijuana Millions. To learn how to get your free copy, just click here.
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