In 1848, there were around 1,000 non-native people living in California. By the end of 1849’s Gold Rush, there were over 100,000 living in the territory. By 1852, those settlers had found $2 billion worth of gold in the area. Despite the fortunes made by gold, most of the forty-niners weren’t successful. The Sacramento Bee reports that “one in every five miners who came to California in 1849 was dead within six months.” Legend has it that the people who really made money during the Gold Rush weren’t the many prospectors who spent their time panning and digging for gold, but those who sold them the picks and shovels they needed to do it.
Today’s “Gold Rush” would seem to be in stocks of companies selling marijuana. It’s a fast-growing industry, with many failures and some successes, but explains Carol Ryan, there may be a “pick and shovel” trade for pot stocks. She writes at The Wall Street Journal:
Shareholders in cannabis stocks have lost money lately. Companies that “touch the plant”—those that cultivate and sell pot, such as Cronos Group and Green Thumb Industries—have shed up to 50% of their market value over the past six months, as worries grow about profitability in the sector and the resilience of black-market sellers in legalized states like California. Big corporate investors are among the casualties: Tobacco giant Altria MO 0.69% ’s 45% stake in Cronos is now worth 10% less than the $1.8 billion the Marlboro maker paid for it last December.
Even after the selloff, cannabis names are pricey. Shares in Canopy Growth , CGC 5.51% the loss-making pot company in which Corona brewer Constellation Brands owns a 36% stake, fetches 13 times next year’s projected revenue, according to FactSet data. Companies servicing the cannabis industry look cheap and less volatile by comparison.
Scotts Miracle-Gro is a 150-year-old company that for most of its existence made money selling lawn fertilizer to domestic gardening enthusiasts. More recently, it has been supplying cannabis companies in legalized markets with the equipment they need for indoor growing—everything from horticultural lights, plant-growing trays and air-filtration systems. In the three months through June, the division that supplies its cannabis clients—which represents about a sixth of revenue—grew 138% compared with the same period of 2018, although some of this was due to acquisitions. Its stock is up over 70% so far this year.
Property is another way for more conservative investors to get exposure to the cannabis industry without directly shouldering the regulatory risk of buying stock in a grower. BlackRock Fund Advisors and Northern Trust Investments are among the top shareholders in Innovative Industrial Properties , a real-estate investment trust that specializes in facilities for growing cannabis. Almost 60% of the company’s shares are now owned by institutional investors—a rarity for pot names that rely heavily on retail shareholders.
Read more here.
