With a gun to my head, this is the one cannabis investment I would make right now (and one I would short!)

The US and Canadian cannabis industry is a mess. Massive margin compression is occurring at all levels of the industry due to relentless pressures from the illicit market, high taxes in the licit market, onerous regulations, lack of banking and access to capital, and saturation in many state markets leading to spillovers into neighboring states , and the list goes on and on.

The industry is in the midst of a crash, and “trying to catch a falling knife” is one of the hardest things to do, according to many financial experts. Interested in taking on distressed assets at $0.02 on the dollar? Well, we may not see a real bottom in the market until full federal legalization and interstate commerce can establish a true floor for the price of a pound, an ounce and a gram of cannabis. But even that could be a double bottom, as the international scene could spell the end of the North American cannabis industry in terms of expansion and global growth.

The U.S. and Canadian markets have forfeited their first-mover advantage, leaving the world stage to cheaper-producing and more aggressive players in the new cannabis space. One thought that made American cannabis feel good about the future was that “here in Cali, Colorado, the Emerald Triangle, we grow the best weed, and that’s what will sustain us in the end.” Quality seemed to be the only thing the US and Canadian markets could boast of going forward (certainly not lower prices and cost of production), but that could also be slipping away from American growers.

Now comes the news that Colombia, the country with the most history of growing drugs and shipping them around the world, has a high-THC strain called ‘Creepy’ that’s taking over the world. The demand for this creepy strain is so great that even the socialist neighboring country of Venezuela is being inundated with high-quality Colombian weed. If Americans and Canadians hung their hats on better quality cannabis triumphing over cheaper weed, well, it’s time to find a new hat. The Trump and now Biden administration’s bungling of federal legalization of cannabis could take America’s cannabis market back to the Stone Age as other countries continue to ramp up their cannabis legalization and export efforts. Legal Colombian cannabis grows as Flora claims to grow cannabis for $0.06 per gram and that is the legal market price to grow.

Is it time to step in and grab a cheap dispensary license in need or a cannabis brand that’s out of cash? My frank opinion is by no means the industry has a couple of major falls with US federal legalization and then the bumpy road to importing and exporting cannabis internationally. But what if you had to go long (bet against) a cannabis idea and short (bet against) a cannabis idea? Gun to your head, what would you choose?

go long

If you can’t beat them, join them. While the playing field is not yet set and there are many treacherous outcomes for South America and Latin America, go long in Colombia, Argentina, Ecuador, Brazil and finally Mexico. They are perfectly positioned countries on the map to grow outdoor cannabis all year round. The main populations are very poor, so labor costs are low, electricity is cheap depending on the country and it doesn’t take much to grow cannabis outdoors anyway. Colombia is the country with the most experience in growing drugs and shipping them around the world. Their networks, connections and history will give them a huge edge in international shipping, legal and illegal.

Developed countries won’t be able to compete on cost or experience, and if you thought “our stuff is so much better,” you’re wrong. Give Colombia, Argentina, Mexico and Brazil a few more years ahead of the US and their quality and shipping will be top notch.

Does this mean that no US cannabis can compete on the global open market? No, the Emerald Triangle and a few other locations will command higher prices and be frequented by cannabis fans, but think auto manufacturing and NAFTA. Mexico could produce cars so much cheaper than the US because of auto unions, tariffs and American wages. Using the same analogy, high-quality US weed may be a Mercedes or a BMW, but the auto companies that sell the most cars are Toyota, Honda, and Ford.

Ultimately, the global cannabis consumer will be price conscious, think Bud and Bud Light sales. Every cannabis consumer survey conducted says the same 3 things, how much did it cost, did I get the desired effects from that product, and how difficult or easy was it to get the product (travel time, night mail, etc.). No one has ever claimed that Bud and Bud Light are the best beers in the world, but they are by far the best-selling beers in the US.

In the end, the consumer will ask how much my cannabis cost, did I get high, and how easy or convenient was it to get it. Bud and Bud Light is available in every convenience store and supermarket in America.

Bet on South, Central and Latin American cannabis to win the long-term global cannabis game.

Go short

This one may surprise you and contradict some of the brightest minds in the business, but if I had to choose a short, I would short EU weed. What? This huge market? Don’t you read yourself on Cannabis.net that the European cannabis market could be the largest cannabis market in the world?

If you think the US black market is a problem and is decimating the legal industry at every turn considering you can get edibles for $0.07 for $1.00 on the black market compared to the legal market can, the EU version of it will be 10x worse.

Europe will face much bigger problems with black and illegal markets than the US or Canada for a number of reasons. First, the 27-nation union can very rarely agree on anything, let alone enforce anything. Second, you have members that are very “rich” like Germany and Switzerland and members that are very poor like former Soviet Union countries like Romania and Belarus. Hence there is a natural incentive for the “poor” countries to cheat and try to make more money as they cannot compete with Germany and Poland in the EU.

Not to mention the poor countries of North Africa that sit in beautiful geographic regions to grow cannabis. See where Tunisia, Libya, Algeria, Morocco, Sudan, Niger and Chad are located on the climate zone map. They also have massive access to Europe via a variety of routes such as land, sea and air. If you think immigrants are a problem for Europe, wait until you see cannabis being introduced by land, sea and air.

Europe also has thousands of kilometers of land and sea borders with a multitude of poor countries. Basically, access points to Europe are 10x more common than the US and Mexican borders.

History would also play a role if you follow the euro crisis a few years ago, Germany set the rules and everyone else had to follow. There is ill will towards the wealthy northern EU countries towards the less productive southern European countries. It will be German legalization against everyone else once cannabis gets rolling in the EU. The financial incentives to cheat and use the black market will be overwhelming for residents of needy countries. The incentive to “do what Germany says” will fall on deaf ears when it comes to cannabis enforcement when every mayor, immigration officer and police chief gets their share of the action.

Yes, the EU will be a huge cannabis market, but also vulnerable to the largest illicit market in the world. The EU, which has poor members and is surrounded by poor countries, will help create high-volume “weed corridors” for shipping and selling illicit cannabis.

Just think California x10. Instead of an ocean on one side of California, what would it look like if you put Haiti, Costa Rica, the Dominican Republic, and Brazil as borders next to California instead of the Pacific Ocean? That’s pretty much what the EU looks at when trying to create a unified cannabis industry with rules and enforcement.

Making money from cannabis is a long game, keep calm, watch the legalization and import/export numbers from around the world to get a feel for who will win and who will lose in the international weed game.

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