This week on The Invested Dads Podcast, Josh and Austin are talking about Pot Stocks -this may be the highest episode ever! They discuss arguments both for and against the legalization of recreational marijuana, support levels, legislation, and how to invest in this industry. Tune in now!
Main Talking Points
[1:26] – The Legalization of Marijuana
[4:43] – State Legislation
[8:09] – Support Levels of Legalization
[10:51] – Dad Joke of the Week
[11:38] – Arguments Against the Legalization of Recreational Marijuana
[13:17] – Arguments For the Legalization of Recreational Marijuana
[16:22] – How to Invest in This Industry
[17:23] – Exchange Traded Funds
[18:26] – Mutual Funds
[18:56] – Cannabis ETFs Recent Performance
[20:39] – Should You Invest in Pot Stocks?
Links & Resources
Invest With Us – The Invested Dads
Free Guide: 8 Timeless Principles of Investing
031: ETFs vs Mutual Funds – The Invested Dads
Two-Thirds of Americans Support Marijuana Legalization – Pew Research
Marijuana Laws in the United States – Ballotpedia
Social Media
Full Transcript
Intro:
Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action, and make your financial situation better. Helping you to understand the current world of financial planning and investments. Here are your hosts, Josh Robb and Austin Wilson.
Austin Wilson:
All right, hey hey hey, welcome back to The Invested Dads Podcast, a podcast where we take you on a journey to better your financial future. Today, we are going to be talking about pot stocks.
Josh Robb:
All right, this is going to be our highest episode ever, I think. Pot stocks.
Austin Wilson:
Seems likely.
Josh Robb:
Those aren’t like cooking utensils. We are talking about marijuana.
Austin Wilson:
Cast iron skillets.
Josh Robb:
Yes, marijuana stocks.
Austin Wilson:
We’re talking about marijuana stocks, yes, you’re exactly right and this will be our highest episode in terms of episode numbers. So, it’s the latest one.
Josh Robb:
It’s Episode 420. No, it’s not. No, it is a topic that has come up and we’re going to be breaking down first, kind of the legalization of it, trying our best to stay out of politics, but just talking about the impact on that from an investor standpoint, and then talk about whether or not you should invest in it, but this has come up because as it has become more and more mainstream and more and more in the news, the conversation has come up as it becomes more likely that some form will be legalized, and some states and countries have started that process. And I say, countries cause Canada, up north of us…
Austin Wilson:
Right across the border.
Josh Robb:
So it’s been a conversation, so we thought we would address it.
[1:26] – The Legalization of Marijuana
Austin Wilson:
Yeah. So the question is-
Josh Robb:
Yes?
Austin Wilson:
It’s illegal on a federal level, right?
Josh Robb:
Still is illegal.
Austin Wilson:
Why are we talking about this? Well, okay. Let’s just break this down. Cause it’s little bit more nuanced than that. So yes, it’s illegal on a federal level, marijuana, according to the U.S. Drug Enforcement Agency, the DEA.
Josh Robb:
D.E.A.
Austin Wilson:
I’ll link to one of their pages in the show notes, which breaks down the schedules. But marijuana is officially listed as a schedule one drug at this point.
Josh Robb:
How many schedules are there?
Austin Wilson:
There’s like five-
Josh Robb:
Five, okay.
Austin Wilson:
Yeah, there’s like five schedules. So according to the DEA, a schedule one drug has no currently accepted medical use and a high potential for abuse and also includes things like heroin, LSD, ecstasy, meth, and peyote. In addition to marijuana.
Josh Robb:
Wow, that’s a big range of –
Austin Wilson:
I know it seems like some really crazy drugs to…
Josh Robb:
Heroin, LSD-
Austin Wilson:
But then native American peyote, so…
Josh Robb:
And marijuana.
Austin Wilson:
Widespread things here. But the DEA itself is saying that marijuana has no accepted medical use in a high potential for abuse. So that is why they list it as a schedule one and we’re going to get to it later. But I think as recent as 2016, that schedule one classification was put under scrutiny and it actually remained, it was asked to be looked at again and it stayed as a schedule one at that point. But the schedule one tag has not prevented many states from passing laws that enable at least some use of the substance.
Josh Robb:
So we have a federal law, and then states passing their own laws. So does that make it legal or illegal? Okay.
Austin Wilson:
Yep. It sure does.
Josh Robb:
Ok, clears that up.
Austin Wilson:
So at a federal level, yeah, it remains illegal, but since states enforce their own narcotics statutes, there’s a conflict between state and national legislation. At that point, like I said, as recent 2016, that classification was challenged and rejected. One thing holding declassification back is the fact that the Food and Drug Administration, so the FDA, has not proven that it is scientifically and medically safe or effective, or at least they haven’t published any findings or research or studies that would say that. Whether they’ve done them or not, we really don’t know.
Josh Robb:
Okay. So the FDA, the Food and Drug Administration, if they came out with some sort of research that said, Hey, marijuana helped, or at least didn’t hinder this, then that would at least maybe help the process for the DEA to reconsider adjusting that classification. Yeah.
Austin Wilson:
Yeah, absolutely. And it is good to note that it has been illegal on a federal level since 1937 and in 1970, that was when the DEA schedules came out. And then it was at that point, it was listed as a schedule one in 1970, which, if you think about when that happened, that’s right at the end of the, you know, hippie, late sixties…
Josh Robb:
Look at all these crazy…
Austin Wilson:
Oh, let’s just make it illegal. So anyway..
Josh Robb:
So it was legal before 1937? Or just…
Austin Wilson:
It wasn’t illegal, I guess that’s the way to put it. There was no enforcement of it at that point, but that’s just like, there are other things that were legal or just not illegal back then, like cocaine and all kinds of crazy things.
Josh Robb:
They just haven’t said anything about it…
Austin Wilson:
Exactly, exactly. It hadn’t become a problem is probably what happened.
Josh Robb:
Okay.
[4:43] – State Legislation
Austin Wilson:
So let’s talk about state. So we talked about this battle between the federal government and the states in terms of legislation, what’s legal, what’s not. So as of the summer of 2021, 19 states and districts, so the district being Washington D.C. have officially voted to permit legal recreational use of marijuana. Well, technically 20, because south Dakota’s vote in 2020 was overturned by a circuit court ruling and it’s still under appeal, but 19/20 states have, or districts, if you include Washington D.C., which we’ll get to, have voted that into full statewide legality of recreational use. So let’s break down the states and the timeline. In 2012, Colorado and Washington state made marijuana recreationally legal in the state. In 2014, Alaska, Oregon, and Washington, D.C. Made it illegal for recreational use. In 2016, California…
Josh Robb:
Pause. Washington, D.C., my history/government understanding of how everything works is Washington D.C., they’re not all federally regulated?
Austin Wilson:
Correct. It’s not a state, but it is a state.
Josh Robb:
Yeah. Okay. So, they do their thing.
Austin Wilson:
They do their own thing.
Josh Robb:
They don’t have any elected people and…
Austin Wilson:
There’s a mayor. And…
Josh Robb:
But for Senate and house, they do not have representation there. Okay. But they can pass her own little law. That’s all.
Austin Wilson:
That’s a whole other topic for another day, because that’s been discussed widely as well, but yes, Washington D.C…
Josh Robb:
They can legalize marijuana.
Austin Wilson:
It is legalized, that you can recreational use marijuana. So if you question what your elected representatives are doing, sometimes that could be the reason. 2016 California, Maine, Massachusetts, and Nevada. 2018, Michigan, Vermont. Illinois made it legal in 2019. Now here’s the ticker here, Arizona, Montana, and New Jersey made recreational marijuana legal in 2020 followed by New York, Virginia, New Mexico and Connecticut in 2021. So in total and based on 2019 population estimates, about 40% of Americans, not quite half, but 40% of Americans live in a jurisdiction where marijuana is legal for recreational use.
Josh Robb:
That was 2019. So all those after Arizona, Montana, which hardly anybody lives there. New York, New Jersey, big, populated. Virginia, New Mexico, Connecticut. So probably 40%…
Austin Wilson:
Getting close to that 50, who knows. So that’s big. Additionally, 37 states and territories have approved marijuana for medical use, 37. So that’s a lot more than the 20.
Josh Robb:
Yes.
Austin Wilson:
I’m not going to go through that list, but if you want to go through that list, and you’re curious, I’ll link a great little resource from BallotPedia.org, which has a good graphic you can check out linked on the show notes below, but based on 2019 estimates, again, kind of the most recent data we’ve got there, 67 and a half percent of Americans live in a jurisdiction with access to medicinal marijuana. And that’s higher as well.
Josh Robb:
Yeah.
Austin Wilson:
So notice that there were seven states that legalized marijuana for recreational use since the start of the COVID-19 pandemic.
Josh Robb:
Oh, yes.
Austin Wilson:
So I guess that would mean that they placed a high priority on it.
Josh Robb:
You you’ve been waiting for that one, haven’t you?
[8:09] – Support Levels of Legalization
Austin Wilson:
So let’s talk about support levels, because obviously we elect officials to put laws through that represent us as Americans, but you would think that if the vast majority of people support something, it will at least get discussed as a potential for legislation. So let’s talk about support levels. 12% of adults supported legalization in 1969, 12% of adults. This steadily increased, I’m talking every single measured period that they did a measure.
Josh Robb:
What percent of adults went to Woodstock in 1969, about 12%?
Austin Wilson:
About 12%, yeah. So this steadily increased to 66% in 2019, 12% to 60% throughout those 50-some years with older adults being less likely than younger adults to support throughout that data period. So the older you are, the less, statistically speaking, support you had for legalized recreational support of marijuana. When we look at it by political affiliation, there is a difference. 73% of Democrats support recreational legalization compared to only 40% for Republicans. So that’s a big gap.
Josh Robb:
That’s a big, big difference between those.
Austin Wilson:
When it concerns medicinal marijuana, 96% of Democrats support it, and 86% of Republicans.
Josh Robb:
That’s a lot closer…
Austin Wilson:
Yeah, that’s a lot closer. So when it comes to medicinal, I don’t think people have as much of a problem as when it comes to recreational there.
Josh Robb:
But as of right now, the FDA has not found any or released any research that’s shown a positive correlation there.
Austin Wilson:
Yes. So legislation, we talked about how, generally speaking, we’re electing people that we expect to bring things that matter to the people as a whole to law. That’s kind of what we do. So based on the support levels with a higher percentage of supporters, being Democrats, of recreational marijuana, specifically and factoring in the blue legislative and executive branches of the federal government, it would be easy to expect some formal discussion about this between now and the next midterms in 2022.
Josh Robb:
They don’t like to talk about it during the midterms, though.
Austin Wilson:
No. Avoid controversy.
Josh Robb:
Yes.
Austin Wilson:
Maybe they’ll wait till after that. Let’s look at how close the polls are and decide whether we’re going to talk about this, but nothing firm, as of now, obviously our legislators have a lot on their plate.
Josh Robb:
It’s not an infrastructure bill.
Austin Wilson:
It’s not an infrastructure bill. They wanted to push that through first. To my knowledge, there’s not a ton of line items for marijuana in the infrastructure bill. There’s a lot of other things.
Josh Robb:
That’s not it.
[10:51] – Dad Joke of the Week
Austin Wilson:
So, Josh..
Josh Robb:
Yes.
Austin Wilson:
I think one of the things that prompted this episode idea was that you found a funny dad joke.
Josh Robb:
I found a dad joke.
Austin Wilson:
So let’s have Dad Joke of the Week. And I have a couple for you.
Josh Robb:
All right. We’re going to get a couple of these. How do fish get high?
Austin Wilson:
I don’t know.
Josh Robb:
Seaweed.
Austin Wilson:
Oh man.
Josh Robb:
I know that’s funny. Simple, funny…
Austin Wilson:
Okay. You wait, you wait. Okay. This is more of a statement. Okay. I just spent my life savings on the cannabis farm. The estate agent assured me it’s a growth industry. Okay. This is why I chuckled at your joke. What kind of cannabis does a mermaid smoke?
Josh Robb:
Oh boy.
Austin Wilson:
Seaweed.
Josh Robb:
Seaweeds, same thing. I mean any animal, any sea creature…
[11:38] – Arguments Against the Legalization of Recreational Marijuana
Austin Wilson:
Just seaweed. So Josh, kind of break down a little bit. Let’s go pros and cons. Why some people think that we should not, as a country, legalize recreational marijuana and let’s talk then flip side of that. Why some people think that we should.
Josh Robb:
Okay. So let’s start with the argument against legalization. So people that don’t think we should legalize, or continue how we are with it being illegal, the addictive nature of marijuana. So some people believe the addictive nature, and that if you legalize it, that could lead to higher costs of treatment for people in the drug addiction. They also believe that it could be a gateway drug towards other drugs, so if you experiment with marijuana, you could have a higher chance of trying other drugs all the way down to cocaine, heroin, opioids, all that stuff. And then similar to smoking, you’re inhaling smoke that there are some health effects. Lung cancer, a lot of cardiovascular diseases that could be a result of inhaling smoke, whether it’s from a cigarette or marijuana. And then there’s the mental health issue. Part of it is just because it’s been illegal, here’s not been a lot of research and study on the impacts, long-term impacts on some of this stuff.
Austin Wilson:
Right. And that’s probably part of the reason that there are these thoughts against it, is because no one has published… Not no one, the FDA specifically hasn’t published any research on this. So these things, whether they’re true or not have not been refuted or disputed, it’s just opinion over time at this point. So, flip the page.
[13:17] – Arguments For the Legalization of Recreational Marijuana
Josh Robb:
Flip flop. People who say…
Austin Wilson:
This is a good thing. Let’s legalize it.
Josh Robb:
Yep. So the people arguing for the legalization, well, if you legalize it, chances are you’re going to have some sort of tax on it, a very high tax. You’re going to get new revenue. So state, local governments could… And we’ve seen that with some of the states that are legalizing for medicinal or for recreational youth. They have seen an increase in revenue collections from taxes, alcohol, tobacco, the sin tax is what it’s referenced, as some of those things that fall into that category. They have a higher tax and people accept or pay that higher tax on certain products.
Austin Wilson:
Right.
Josh Robb:
If you legalize it, that actually eases the enforcement burden for law enforcement and that side of things, our court system, our law enforcement officers, there’s a lot of time taken up for marijuana. And if you legalize it, a lot of that would be adjusted. Now there’s one thing, this is not a for or against, but what if you are put in jail for marijuana possession and then they legalize it later, do you get a get out of jail card?
Austin Wilson:
Right, and that’s one of the debates, because there are probably thousands of people who have some sort of infraction leading back to that.
Josh Robb:
There’s a piece of it…
Austin Wilson:
…Where it could impact them. I read that in 2018, out of the 10 million arrests in the U.S., over 1 million were drug-related okay? Marijuana was the largest portion of all drug related offenses at that point. So if you maybe reduce that as being an issue, then you free up your officers to focus on more serious and maybe violent crimes, sex trafficking, child…this and that. Obviously everything’s real, but some of these are life and death situations that you can then allocate more resources to.
Josh Robb:
Yeah.
Austin Wilson:
So, that’s interesting.
Josh Robb:
And then finally, along with all that, if you legalize it, it will probably be studied more. It could have a higher safety because once the government gets involved, regulations, rules… Alcohol is a good example. You know, there’s a minimum drinking age. There are limits to what you can do. If you have consumed the level that you can have in your system before it’s considered illegal to drive. And those types of things. So with regulation maybe, would make a little higher safety around that use right now.
Austin Wilson:
And I think that the component, the actual drug itself, if it’s legal and you’re regulating the use of it and regulating how it’s made and produced and the ingredients and all of this stuff, that could have less harmful additives. If you bought it off the street, you don’t know what’s in it. And if it’s legal, then you at least have some control over what’s in it there. Potential for increased safety.
[16:22] – How to Invest in This Industry
Josh Robb:
Yeah. So, for and against, we’re talking about arguments, right? Right. There’s a moral aspect of it to kind of where you stand on. Even again, if you lump in other types of those type of products where you feel that makes sense or not, but from a high level, those are kind of the main arguments you see people put out there for and against, and then let’s talk investing then, because wherever you fall on that scale, as of right now, there are ways you can invest in this industry. There are ways if you wanted to, you could find companies here in the U.S., and like I mentioned, globally, where if you wanted to invest in, you could participate. So what are some of those and what do you got?
Austin Wilson:
Well, some of the companies that you, if you watch the news, the CNBC business news, anything like that, some of the cannabis related companies that may pop up are companies like TLRY ticker, T-L-R-Y. Canopy Growth Corporation, ticker C-G-C. Aurora Cannabis, Inc. That’s A-C-B. Those are, if you’re looking individual companies, they’re not saying there’s a recommendation saying, do your own research, but those are just some names in the trend that are investible assets.
Josh Robb:
Speaking of names…
Austin Wilson:
Oh, I love names.
Josh Robb:
Speaking of names.
Austin Wilson:
You’ve got a thing for tickers.
Josh Robb:
I love a goof ticker that matches where you’re going with your investing. So, I bet you there’s some ETFs out there with some good tickers.
[17:23] – Exchange Traded Funds
Austin Wilson:
We like our ETF tickers. So let’s talk about some ETF. So these are exchange traded funds. These are different than mutual funds. And again, we’re always going to say it, but if you want to learn about the difference, we have an episode where we’re dedicated to discussing that. We’re not going to talk about it today, but an exchange traded fund that you can invest in this theme is the Amplify Seymour Cannabis ETF, ticker C-N-B-S.
Josh Robb:
And see more, is not I want to see more cannabis. It’s S-E-Y-M-O-U-R.
Austin Wilson:
Exactly. Another one is the Advisor Shares Pure Cannabis ETF, as opposed to the not-pure one. And the ticker is YOLO. Another one is the, just straight up Cannabis ETF, ticker, T-H-C-X.
Josh Robb:
There you go.
Austin Wilson:
And one more. Josh’s favorite, the ETF M-G Alternative Harvest ETF, ticker, M-J.
Josh Robb:
They’re creative. They’re on it.
Austin Wilson:
That’s good! Someone paid big money for M-J as their ticker.
Josh Robb:
And YOLO is still out there. Skydive publicly traded, Skydiving ETF.
[18:26] – Mutual Funds
Austin Wilson:
So let’s flip a page to mutual funds because you can also invest in mutual funds. There’s an American Growth Cannabis Fund and does not have a great ticker, Because mutual funds just typically don’t have good tickers anyway. And this ticker is A-M-R-E-X. There are options out there. Again, not recommendations, but there are options to invest in this space.
Josh Robb:
Yes.
Austin Wilson:
It’s a growth space.
Josh Robb:
Yeah. He liked that. That’s apparently what your joke tells us.
[18:56] – Cannabis ETFs Recent Performance
Austin Wilson:
So let’s talk about performance. Okay. Let’s specifically talk about these ETFs that we talked about. I’m going to preface this by saying we don’t have a long track record. These companies have not been public very long, so therefore the ETFs that hold them have not been available very long. So C-N-B-S, which is the Amplify Seymour Cannabis ETF, is up 1.5% over the past two years. Woo-hoo. Now the S-P-Y, the spider S and P 500 ETF is up 55% over the same time.
Josh Robb:
Yeah.
Austin Wilson:
It’s been a bumpy ride. Over one year, however, so going back one year, the C-N-B-S ETF is up 43% versus 30% for the S-P-Y. So it’s bumpy is what we’re gathering.
Josh Robb:
Volatility. New industries tend to be that way.
Austin Wilson:
So let’s talk about YOLO. YOLO is up less than 1% over the past two years. And over one year, it’s up 41%. T-H-C-X is down 24% over the past two years.
Josh Robb:
Oh, wow.
Austin Wilson:
Down 24%. Over one year, it’s up 44%.
Josh Robb:
There you go.
Austin Wilson:
And MJ, best ticker award…
Josh Robb:
Yes.
Austin Wilson:
It’s down 32% over the past two years, and over one year up 30%.
Josh Robb:
Like a lot of the market, it’s over the last one year. We’re talking the recovery time for the whole market. So in line, but…
Austin Wilson:
And a lot of that had to do with…The election changed some of people’s views on these companies, because as the election leaned more blue over more time, especially into January as we had the runoffs in Georgia, that made people think that these would have been a better option than they were previously because of the opportunity of that being on the legislative agenda. So Josh, as we know, the question always is, we know we can, but should we invest in pot stocks?
[20:39] – Should You Invest in Pot Stocks?
Josh Robb:
Well, I usually say it depends. And I’m going to say that again, but there’s an extra, added piece to this. Normally it depends on your situation, your goals, your risk tolerance. And all that still applies. But the added piece to that is, it is still illegal federally. And so from a moral standpoint, how do you feel investing in an industry that has been deemed to be federally illegal? Although some states, again, like we talked about have legalized it within their state. So that’s one more aspect to consider when you think about investing in this area. As always, talk to your advisor, make sure you have a very good conversation on what that means, what the tax impact would be. Any ramifications. If you don’t have an advisor, you can give us a call, we’d be happy to help talk with you about how we do investing. But this is one of those, a lot stickier of a situation than, when we talked about what utility is or anything like that, there’s another aspect added on top of why or why not, if you should be in, into this type of thing.
Austin Wilson:
Absolutely. Yeah. Great answer. Josh. Two reminders as we wrap up this episode. Number one, it’s not too late to enter our second half stock draft competition. You’ll start with a fresh, 100,000 fake dollars and be competing with the rest of us all the way through the end of the year. You can actually enter all the way up to the end of the year and who knows what will happen?
Josh Robb:
Yeah.
Austin Wilson:
It’s anyone’s game at this point. Number two, as always, check out our free gift to you. It’s a brief list of eight principles of timeless investing. These are overarching investment themes meant to keep on track to meet your long-term goals. And no, we don’t specifically talk about pot stocks, but check that out. It’s free on our website, Josh, how can people help us grow this podcast?
Josh Robb:
Make sure you subscribe, that way you can always get our most recent episodes downloaded straight to whatever device you use to listen to podcasts. Leave us a review on Apple Podcasts. And if you have any questions about what we talked about today, want some clarification or have a great topic you’d love to hear us talk about, shoot us an email at hello@theinvesteddads.com. And if you know somebody talking about this topic, share this episode. Hopefully it’ll inform you, give you some more things to think about.
Austin Wilson:
That’s right. Well until next Thursday, have a great week. Bye.
Josh Robb:
Talk to you later.
Outro:
Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to TheInvestedDads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe, and don’t miss the next episode. Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin, or any podcast guests are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.
