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Marijuana Stocks and Cryptocurrency — Supply and Demand

Marijuana stocks and cryptocurrencies both performed spectacularly as 2017 came to a close, and both sectors continue to look healthy as 2018 gets rolling.

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Marijuana stocks and cryptocurrencies both performed spectacularly as 2017 came to a close, and both sectors continue to look healthy as 2018 gets rolling. (The broad stock market still looks fine as well, which is encouraging.)

Furthermore, I’m long-term bullish on both sectors, for some very big fundamental reasons.

Legal Marijuana Trend is Clear

The reason I like marijuana investments long-term is that the trend toward legal marijuana is very clear, and I’m confident that neither Attorney General Jeff Sessions nor any other person will stop the trend.

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In fact, here’s a chart of Kush Bottles (KSHB), which makes packaging products for a wide variety of marijuana products.

You can see on the chart the one day of selling on January 4 when Sessions rescinded the Obama-era leniency directive. But the very next day, the buyers took control again. This is a strong chart!

Kush Bottles (KSHB) is one of many marijuana stocks that have gone sky-high in recent months.

A Transition from Sovereign Currencies
As to cryptocurrencies, the main reason I’m bullish on them long-term is that I’m optimistic that global alternative currencies will eventually help us transition from a system of sovereign currencies—which are vulnerable to all sorts of political pressures—to global digital currencies, which in the long run will make global trade more efficient.

However, there’s no way to justify the current valuations of either marijuana stocks or cryptocurrencies—and that’s a bit worrisome. In fact, it tells me that in the short-term, anything can happen!

Marijuana Stocks and Cryptocurrency: All About Supply and Demand

Why have marijuana stocks and cryptocurrencies been so strong? In my view, it’s all about supply and demand

On the marijuana side, increasing bullishness about the industry (in both Canada and the U.S.) has brought an influx of money into the sector faster than the industry was prepared to absorb it. For example, in my book, there are three major marijuana growers in Canada and a handful of smaller ones, and all of them have seen their stocks at least double since I recommended them last August.

The best is up a whopping 406% as I write, and now has a market capitalization of $5 billion, even though revenues in last year were just $15 million. Eventually, the company is expected to deserve this lofty valuation (and probably more), but any change in sentiment before then—and I guarantee there will be one—could send shareholders temporarily running for the door, with early investors taking profits and late buyers taking quick losses.

And the same can be said for cryptocurrencies. Investor sentiment has heated up so rapidly that demand has run far ahead of supply—in fact, there are limits to how much Bitcoin, for example, can be mined—with the result that prices have skyrocketed.

But will prices stay up here?

Experience tells me that at some point, those marijuana stocks are going to enter a major phase of consolidation, if not correction. In the meantime, it will be interesting to see how prices fall for legal marijuana, how brands evolve, and how legal commerce slowly replaces the black market.

As to cryptocurrencies, experience tells me that at some point, they too are going to experience some blow-off buying followed by some precipitous declines, as buyers turn into sellers and prices freefall—for a while. Again, my rule of thumb is that giving back 50% of the previous advance would not be unusual.

So how is a smart person to invest?

I don’t feel comfortable investing (or speculating) in cryptocurrencies yet, so I’m still on sidelines there, waiting for the dust to settle and trying to understand the industry better (and waiting for more tradable vehicles).

But stocks are my area of expertise, particularly fast-growing stocks in young industries like marijuana, so I’ve become very comfortable with the industry over the past year.

In fact, as I write, the average profit in my Cabot Marijuana Investor report is 159%, and I’m eagerly looking forward to publishing the next issue in February.

If you’d like to join my happy readers, click here.

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Timothy Lutts is Chairman and Chief Investment Strategist of Cabot Wealth Network, leading a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems.