Money Talks the Loudest

Steve's note: I may not cover cannabis stocks in my own work – but if you're interested in these big movers, I want to make sure you're listening to the guy who knows this space inside and out... my colleague Thomas Carroll. Today, he shares why the COVID-19 crisis could put the full force of the government behind these companies...


The novel coronavirus has wreaked havoc on the economy... crushing state and federal finances as a result.

It may last much longer than people think. And it's no secret that the strategy being used to support the economy is "spend, spend, and spend some more." As Jerome Powell, chair of the Federal Reserve, eloquently stated:

Now is not the time to worry about debt but use the great fiscal power of the U.S. to avoid deeper damage to the economy.

While the merits of this spending strategy are debated by many, the result of this is clear: National debt will skyrocket.

And it isn't just debt that will linger... Sales taxes – most states' largest source of revenue – have plummeted. Personal income taxes (the next biggest contributor to state revenues) are tracking the same downward spiral.

What can the government do about this?

State and federal agencies can either reduce spending (unlikely)... or look to increase revenue. That's why all roads lead to one surprising conclusion...

Every current state and federal fiscal outlook will accelerate widespread cannabis legalization – both medicinal and recreational. And that presents an incredible opportunity for investors.

Let me show you what I mean...

The cannabis market in the U.S. likely exceeds $50 billion annually.

A study by Arcview Market Research estimated 2016 illegal cannabis sales at $46.4 billion, or 87% of total cannabis sales. This equates to a total market of $53.3 billion. Over the last four years, cannabis sales have done nothing but increase from this level.

And almost all of this remains untaxed.

If rationally structured and legalized, excise taxes of 20% would add $10 billion of new revenue to state and federal coffers. (Excise taxes are a flat-rate tax that applies to specific goods, services, and activities.)

Remember, this market is with us today. It does not need to be created.

Plus, a freshly legalized market would undoubtedly increase as new consumers emerge.

As we know, this is already happening... Over the last six years, a limited number of states have begun to reap the rewards of the cannabis market.

In 2019, $1.9 billion of tax revenue came to states with recreational cannabis laws. This excludes states with only medical-cannabis programs... We are highlighting just the recreational states as they illustrate how readily available the tax revenues are.

Colorado alone has raked in more than $1.3 billion in revenues from medical and recreational cannabis since 2014.

These funds are greatly needed right now. As of early July, every single U.S. state expected to be short of funds in 2020. This threatens important services such as education and health care. It's estimated that states will see a $200 billion shortfall by June 2021.

The federal government is no different... The Bipartisan Policy Center tracks the federal deficit on a monthly basis. The chart below illustrates the deficit's monthly progression for 2017 to 2020 (estimated). This information comes directly from the U.S. Department of the Treasury and the Congressional Budget Office ("CBO")...

The CBO is projecting a 2020 deficit of $3.3 trillion. Again, this is the federal government.

As we know, the Fed can print money, but states still have to balance their budgets. They cannot harvest dollars from a money tree, and most are facing big trouble in 2020 and 2021.

To further illustrate this point, let's look at the two largest state budgets in the U.S. – California and New York. In California, the current budget is a little more than $200 billion. Going into 2021, an expected shortfall of $18 billion to $31 billion is projected.

In New York, with a $177 billion budget, a $13.3 billion deficit is projected for the coming fiscal year. The rest of the country is similar.

Do you see the irony here? California has a huge recreational cannabis market... And it's still seeing a shortfall. What might the challenge be without cannabis?

Remember, $1.9 billion of tax revenue came to states that allow recreational cannabis – and again, that's recreational only. No matter how you look at it, billions of dollars in potential annual tax revenues are not currently being collected.

You might think cannabis legislation is controversial. But when it comes to politics, money talks the loudest.

The picture is clear in light of the pandemic... The current cannabis market is a great place to add tax revenues. And states need it now more than ever.

Good investing,

Thomas Carroll

Editor's note: Federal legalization isn't the only catalyst that could send cannabis stocks soaring... According to Thomas, a much more subtle policy change is about to open this market to 45 million Americans virtually overnight. He just put together a brand-new presentation to help everyday investors get ready for this shift. Check it out right here.

Further Reading

It's no secret that the cannabis industry represents a huge potential growth market. But if you want to get ahead, you have to know which companies are positioned best... Read more here: The Best Way to Gain an Edge in the Cannabis Industry.

"Now is the time to get in on this transformative trend – if you can put together the right strategy," Thomas writes. The opportunity in cannabis is potentially even bigger than the end of Prohibition. That's why Thomas has identified some of the traits of a successful cannabis company... Get the full story right here.

Market Notes
THIS MEGASTORE HAS THE ESSENTIALS AS WE CONTINUE TO BATTLE COVID-19

Today’s company is stocked with pandemic must-have items…

As coronavirus cases continue to rise, folks are looking to stock up on necessary goods for winter, such as home appliances, groceries, and warmer clothing. And with the uncertainty surrounding a potential “second wave” of the virus, everyone will want to have cleaning supplies and medicines on hand. Today’s company has all the goods its customers need…

Costco Wholesale (COST) is a $165 billion megastore chain with 795 locations worldwide. As readers know, Costco sells a host of items to its paying members – and often in bulk. That includes home goods, outerwear, groceries, toilet paper, and much more. With coronavirus still front and center, people are continuing to buy its wide array of products… Same-store sales rose 15.5% in September, and consumers’ average order size climbed 12.6%, coming in ahead of expectations.

As the chart shows, COST shares are up almost 30% this year. They’re now at all-time highs. And as folks prepare for colder weather and load up on essential items, it should only boost shares of this “buying in bulk” store…