On Sunday, we suggested that the increase in traveling escorts [4] combined with a concurrent drop in spending on alcohol and gambling bodes poorly for consumer spending in the US. Retail sales have missed expectations for four months in a row for the first time since Lehman and if you believe trends in all-cash industries are a good leading indicator for spending in the “real” economy, than you have to think that falling spending on what Vice Index creator Andrew Zatlin calls “the fun stuff” is bad news for an economy that’s traditionally driven by the consumer (who, you’re reminded, is buried under nonexistent wage growth at low paying jobs).
What we did not mention is that there’s still one area in the vice economy that’s seeing robust gains: marijuana sales. Here’s Zatlin [5]:
Colorado has hit another new ‘high’ in tax revenues from retail (recreational) pot sales.
[6]
Where other vices are slowing, pot sales continue to hit new highs. That’s because it’s a growing business. Between new services and products and distribution channels, there’s a lot of money yet to be made here. There are untapped opportunities even for mainstream investors.
As it turns out, Zatlin’s report serves as perfect segway into a new series of infographics from Bloomberg which should serve as a helpful guide for all the “mainstream investors” out there looking to get in on an industry which is riding ‘high.’
From Bloomberg [7]:
More than two years after Colorado and Washington became the first states to legalize recreational marijuana, a small but growing number of publicly traded companies are betting their futures on the hope of a thriving legal market for pot-based products. Bloomberg identified 55 public companies whose business is based largely or completely on legal marijuana, and whose shares traded at $0.10 or more as of April 15th. These wildly fluctuating penny stocks aren’t for the faint of heart.
Many of these companies have experienced the pitfalls common to penny stocks: infrequent trading and wild swings in share price. Some of the businesses once had nothing to do with marijuana but changed their product lines to get in on the ground floor of a new industry.
The 55 companies have a combined market capitalization of just $3 billion. But there’s plenty of room for growth. Currently 24 states have legalized medical marijuana and voters in Washington, Colorado, Alaska, Oregon, and the District of Columbia have approved pot for recreational use. More may soon join them. In 2016, the question of legalizing marijuana medicinally or recreationally could be on the ballot in 12 states.
[8]
[9]
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Click here for full interactive graphics [7]
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While these “wildly fluctuating penny stocks” may not be appropriate for everyone, we would note that the way things are going, they may soon offer more liquidity than Treasurys and bunds.
