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Pot Will Revive Small-Town America

The US is experiencing its biggest change in generations.

And the story of Desert Hot Springs, California, is the key to understanding it all.

You’ve probably never heard of this small town of 29,000 people. It’s the forgotten neighbor of storied Palm Springs.

Like many US cities, Desert Hot Springs had chronic financial problems. The city filed for Chapter 9 municipal bankruptcy in 2001. Then it nearly went bankrupt again in 2014, when the city declared a fiscal emergency.

Desperate to solve their financial troubles, the people of Desert Hot Springs opened their minds to a new idea.

They voted to become the first place in California to allow indoor cannabis cultivation on an industrial scale. A full 70% were in favor.

The city would, of course, tax these operations.

Local politicians had nixed the idea before. But the risk of two bankruptcies in 15 years changed their minds. Necessity has a way of doing that.

This once-dying town is now experiencing a renaissance. Since the vote, it’s issued permits to more than 30 growers for over 3 million square feet of cannabis cultivation.

Hundreds of new jobs have been created. Previously vacant industrial real estate is buzzing with activity.

The city now has a $15 million budget to pay government employees and run the town. Yet it’s soon expected to take in $50 million in cannabis taxes alone.

Desert Hot Springs has gone from a dying town with big money troubles to a booming city with more cash than it knows what to do with.

This is why widespread cannabis legalization is inevitable… money.

It’s also imminent. After all, 29 states plus Washington, DC have already legalized medical marijuana. And nine states (plus DC) have approved recreational use, including Vermont earlier this year.

It’s only a matter of time before other states do the same. There’s too much money and too many jobs at stake not to.

Just look at Colorado. In 2016, its marijuana industry generated $1.3 billion in sales. It also created 18,000 full-time jobs. And that’s just one state.

Even Republicans Are Pro-Pot Now

In the past few years, attitudes toward marijuana have radically changed. According to a recent Gallup poll, 64% of Americans say cannabis should be totally legal. That’s the highest level of support since polling on this issue started 48 years ago.

Today, opposition to legalization has dropped to an all-time low of just 34%. Plus, a majority of Democrats and Republicans support cannabis legalization… so it’s bipartisan.

Support has also more than doubled since 2000. And, as you can see in the chart below, it’s continuing to grow.

legalization support chart

Meanwhile, serious efforts are underway to legalize recreational cannabis in Rhode Island, Connecticut, and a handful of other states.

And then there’s New Jersey. The state’s new governor pledged to legalize recreational cannabis by the end of the year.

With each passing election, fewer politicians are in a position to say “no” to legal marijuana. Especially in cash-strapped areas of the country where jobs and opportunities are hard to come by.

Rapid-Fire Changes in Pot Politics

Cannabis politics are moving in a pretty clear direction, even at the federal level. In fact, I think the industry has reached a critical impasse over the past few weeks.

Here’s a roundup of the good news…

  • On February 26, the Securities and Exchange Commission approved the first pure-play cannabis company (a producer that “touches the plant”) for listing on a major US stock exchange. Previously, producers were only listed over the counter.
  • On April 11, former US House Speaker (and former anti-pot politician) John Boehner announced that he’d joined the advisory board of Acreage Holdings, a US investment firm focused on marijuana.
  • On April 12, current New York governor Andrew Cuomo came out in favor of legalizing marijuana in his state. Cuomo said:

It is no longer a question of legal or illegal. It’s legal in Massachusetts. It may be legal in New Jersey. Which means for all intents and purposes it’s going to be here anyway.

  • Also on April 12, US Senate Majority Leader Mitch McConnell—the most powerful Republican on Capitol Hill—introduced a bill to legalize industrial hemp nationwide.
  • On April 13, President Trump promised not to interfere with states’ legal cannabis industries. He completely disavowed Attorney General Jeff Sessions’ ill-conceived plan to attack the US marijuana industry (which was never popular or practical to execute anyway).
  • On April 19, the US Food and Drug Administration (FDA) recommended approval of the first prescription cannabidiol medicine. The British-made drug, Epidiolex, is used to treat rare and severe forms of epilepsy.

Any one of these six events would be remarkable all on its own. Together, they’re an absolute windfall for the cannabis industry. But the news gets even better…

Also on April 19, Chuck Schumer, a powerful Democratic senator from New York, announced he would introduce a bill to decriminalize marijuana at the federal level.

Schumer said:

Ultimately, it’s the right thing to do. Freedom. If smoking marijuana doesn’t hurt anybody else, why shouldn’t we allow people to do it and not make it criminal?

This is huge. Schumer is not some freshman senator. He’s the Senate Minority Leader. He’s been in the Senate since 2005. Before that, he was in the House of Representatives for 18 years.

I might not agree with Schumer on much. But the fact is, he has the clout to actually push this kind of bill through.

For now, though, cannabis is still illegal at the federal level. But I think that will change in the not-so-distant future.

How to Profit Now

In the meantime, there are still plenty of opportunities for regular investors to legally invest in the marijuana market.

The first are “picks and shovels” plays. These are the companies that supply essential products and services to the marijuana industry. That includes hydroponic growing equipment, cannabis accessories, and so forth.

Picks-and-shovels companies don’t “touch the plant.” So, they’re 100% legal under US federal law.

The second is Canadian cannabis producers.

Canada legalized medical marijuana way back in 2001. So, many Canadian producers have a distinct, first-mover advantage. Plus, the country is set to legalize recreational marijuana early this summer.

Full legalization will be a huge boost to Canada’s current $400 million marijuana industry. Accounting firm Deloitte estimates that it could become a $4 billion to $9 billion market once recreational use is legalized.

One investment bank thinks it could soon be worth as much as $10 billion. Others think the industry could blossom into a $20 billion market within a few years.

Early investors in these types of cannabis companies stand to make a fortune.


Nick Giambruno
Editor, Crisis Investing


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