New York state legislators finalized a deal Thursday morning that will legalize recreational marijuana.
I can’t even begin to describe how huge that is for the industry.
For starters, it unleashes a potential $4.2 billion dollar industry on the country’s largest urban market.
But more importantly, it’s going to create tens of thousands of jobs in one of the cities hardest-hit by the COVID-19 pandemic.
And it couldn’t come at a better time. Although initial jobless claims did fall today to their lowest level since the start of the pandemic, the total number of people receiving unemployment went up.
Source: U.S. Department of Labor
In particular, New York City’s unemployment rate is still lingering in the double digits.
Source: New York State Department of Labor
It’s been a rough year for the Big Apple, so between Broadway’s April reopening and this, it’s been nice to finally read some good news.
Honestly, given all the big financial networks are in New York I’m surprised that the cannabis news isn’t getting wider coverage right now.
I mean, if you’re watching or reading CNBC today, then you know the “tape bombs” they’re writing are designed to freak you out about that massive container ship stuck Austin Powers-style in the Suez Canal.
Just look at the space they’re dedicating to it on their website.
It’s amazing how out of touch they can be sometimes.
Just to ease any fears that might be out there, here’s a quick analysis that should put your minds at ease.
While it’s true that the blockage is creating a large backlog of marine trade traffic (238 vessels as of this morning), salvage teams from the Netherlands and Japan are already devising a plan to refloat the ship.
Source: Bloomberg, MapBox, OpenStreetMap
If they’re able to refloat the ship in a typical turnaround time (24-48 hours), then marine traffic will resume as normal.
If not, ships with near-term deliveries have a couple of options.
First, they could re-route around the Cape of Good Hope, adding four weeks to their voyage.
Or they can just wait.
There are some reports out there that refloating the massive container ship could “take weeks.” But the industry folks I spoke with recently were fairly dismissive of that outcome.
And if you’re worried about it affecting the oil market, you can rest easy.
First off, shipments through the Suez Canal have dropped off significantly since last year’s OPEC oil production cuts.
Moreover, storage levels of both crude oil and gasoline (chart below) are at or near seasonal highs in Europe. And that’s even before we consider that several major countries in the region remain on lockdown, so demand for oil products is essentially zero.
So, if anything, I’m bearish on oil and oil product demand in the near term and this event does not affect that view in the slightest.
And while I’m slightly bullish on shipping rates, I have already talked about getting exposure to them through DHT Holdings Inc. (NYSE: DHT) and Scorpio Tankers Inc. (NYSE: STNG). So, it seems wise to hold them until this little event is done, at which point the positions can be closed for about 20-25% gains.
But I’m also bullish on Cannabis, and that’s what this article is supposed to be about, so time to get back on topic.
The market analysis here is incredibly simple.
Current legal cannabis sales in New York are $0.
Future legal cannabis sales will total as much as $4.2 billion by 2027.
Oh, and Democrats control both houses of Congress.
That means that demand for cannabis goes up… both in New York and overall.
So, the thesis here is to buy both broad cannabis exposure and NYC-specific cannabis exposure.
Gaining broad exposure is easy — the AdvisorShares Pure U.S. Cannabis ETF (NYSEArca: MSOS) has real estate, grow operations, technology, medical marijuana, brands and consumables.
Plus, it’s on sale after having corrected 22% off all-time highs… A ¼ stake here makes sense.
For the NYC-specific cannabis exposure, look no further than TPCO Holding Corp. (OTCMKTS: GRAMF).
TPCO (shorthand for The Parent Company) is already fully integrated in California — the world’s largest Cannabis market — through prior acquisitions Caliva and Left Coast Ventures.
But more pertinent to this particular thesis is that they formed a strategic partnership with Shawn Carter Enterprises.
If that’s not a name that rings a bell, he also occasionally goes by the name Jay-Z.
He’s kind of a big deal.
But more importantly, TPCO’s “Chief Visionary Officer” has his hometown of New York City — and the surrounding states of New Jersey and Connecticut — set firmly in his sights.
And if you don’t believe me, just refer to slide 22 of their investor deck… It looks like this.
Source: TPCO Holding Company
Combined, those states would create the largest market in the world — more than 20% larger than California’s.
So this is a massive opportunity to own a vertically integrated operation with proven performers, creating well-known brands, marketed by one of the most famous celebrities and entrepreneurs in the world, that is set to dominate the two largest cannabis markets in the world.
And we even get to pick it up on sale — nearly 30% below its SPAC offering of $10/share — as the stock remains both poorly understood and poorly covered by analysts.
Poor coverage often leads to poor performance and this thing has been a falling knife, so be careful.
Picking up a ¼ tranche here, with the eye to add in smaller increments (1/8, 1/16, or even 1/32 tranches) on the way down is the most pragmatic way to wade in. And I’ll make a point to check in and report on it every so often since nobody else really is.
Because at some point, Chief Visionary Officer Jay-Z is going to step out and evangelize a new business venture for the greater NYC area and this thing will blast off.
That’s when you want to make sure you’re in an Empire State of Mind.
All the best,