Today, a quick revisit on the topic of cannabis…as we’ve seen two major updates in the past week.
But first, let’s talk about the Fed’s announcement on interest rates in the US.
As we predicted, the Fed decided to bump up rates — from 2.25% to 2.5%.
For reference, the rate hasn’t been this high since spring of 2008.
More interestingly though, the Fed amended their plan for future rate hikes…from three to only two in 2019.
To explain what this all means, the Fed (America’s central bank — like our RBNZ) adjusts their Federal Funds Rate (what most just call the interest rate) depending on how they see the market performing.
If things are looking up, they push the rate up.
If things are looking down, rate goes down…
The Fed is essentially opening and closing the tap for the flow of lending in the country. Because easily-available debt is what helps businesses and individuals get by when times are tough.
So by raising the rate today, the Fed has signalled that they think the future looks bright…so they’re slightly closing the tap.
But by downgrading their forecasted rate hikes next year, they’re signalling that the future doesn’t look that bright.
It’s a bit conflicting, I know…but you should expect nothing less of central bankers. That’s their forte after all.
This move means that businesses will have to pay slightly more to borrow money…which could put a downward pressure on earnings next year. I reckon investors will follow up by temporarily selling off stocks this week.
And you can be sure Trump won’t like this one bit. He wants as much ‘easy money’ available as possible to help the market grow plump under his administration. Expect a few angry tweets originating from the White House bathroom later today.
2020 cannabis referendum
Let’s jump back to the cannabis discussion.
It’s an emerging idea that we’ve kept a close eye on. Not because we’re personally interested in the product…but because we’ve seen the remarkable returns that cannabis legalisation can bring investors.
It’s a high-potential hyper-growth industry. One that could explode with the flick of a switch…or more specifically, with the public vote on the 2020 ballot.
Justice Minister Andrew Little has reported that the referendum would be on the ballot…and that the results would be binding.
To me, this is a bit disappointing.
To push the referendum off by nearly two years is one thing. But to mix it in with the mish-mash of other votes like euthanasia or a possible change to New Zealand’s MMP electoral system? That’s another.
It means the question will be a hot-button electoral issue…which could politicise people’s actions.
What do I mean by that?
Most politicians support or oppose ideas based on their party line.
So if they’re running under the banner of a party that’s against cannabis, they’re going to be strongly compelled to echo that sentiment in their interviews and debates…even though they might disagree on a personal level.
It also means that you and I are going to be hearing a lot about this in the months before the vote…and much of it will be relegated to political spin.
What I’d prefer is a separate, unbiased vote. One where voters can discuss the topic based on the merit of cannabis rather than how it plays into some politician’s agenda.
Or in isolation…rather than flanked by seriously important topics like the electoral system or euthanasia.
Tying it up with the 2020 election is a cop-out, in my opinion.
The decision follows an announcement from Police Minister Stuart Nash and Health Minister David Clark on a new government approach to their ‘War on Drugs’.
Essentially, the announcement suggests that the state would now look at drug use as a health issue rather than a criminal issue.
Thus, the Misuse of Drugs Act was amended to say police ‘should use discretion and not prosecute for possession and personal use where a therapeutic approach would be more beneficial…or there is no public interest in a prosecution.’
It may sound like it, but this isn’t decriminalisation of drug use. It’s a reorientation of the perspective that the police take towards personal users. And it’s a push for the police to focus on the manufacturers and suppliers that make up the criminal underworld.
So, on one hand, we’re seeing the official perspective on cannabis use move towards acceptance. But on the other, the binding vote is being made in the political arena.
It’s too early to see what this means for the public view on pot and how the vote plays out…but I reckon, overall, it’s positive progress.
Investing in cannabis
Now to the good stuff — the investing side.
We’ve had our ear to the ground for the first news of a pot IPO.
Cannasouth, based in Waikato, is a strong contender. They’ve thrown out the idea of going public mid-2019. And their operation looks promising…
Hikurangi, down in Gisborne, is another contender. Previously a hemp producer, now a medical research firm, Hikurangi has stolen some headlines, particularly in terms of their positive effect on the local economy.
So far, there’s nothing concrete on the books for 2019 or 2020.
However, with public discussion ramping up in light of the referendum, we may see developments happen sooner rather than later…so stay tuned for our updates.
We have a feeling that the first company to get its symbol on the NZX will claim much of the pent-up investor funds waiting for this opportunity.
It’s just a matter of time…
But a quick caveat — this sort of disruptive opportunity won’t be for everyone. It’s going to be a real roller coaster and highly volatile.
Just taking a look at Tilray [NASDAQ:TLRY] yesterday. The stock moved by +16.10% in a single trading session.
At the same time, its agricultural cousin, Terra Tech [OTCQX:TRTC], fell 23.42%.
That kind of volatility is enough to make my stomach churn. And the basis for the movement is so emotionally charged that it’s hard to predict how these swings will happen.
Not for everyone…that’s for sure.
We’ll continue to keep an eye on it here in New Zealand because we think it could be really explosive for investors…but when it gets closer to go-time, we’ll take a deep-dive look at the opportunities to see if any might be worth your time.
Editor, Money Morning New Zealand