It’s probably the worst financial prediction I’ve ever seen…
On June 22, 2000, Lehman Brothers analyst Ravi Suria made a stunning forecast: Amazon would end up in the retail graveyard.
At the time, the company’s financials looked distressed. And heading into the critical holiday season, Suria said the online retailer’s outlook was bleak.
In his scathing report, he wrote:
[Amazon’s] weak balance sheet, poor working capital management, and massive negative operating cashflow [are] the financial characteristics that have driven innumerable retailers to disaster through history.
After Lehman released the report, Amazon’s shares crashed nearly 20% to $33.88. CEO and founder Jeff Bezos lost nearly $1 billion of his personal fortune in just 24 hours.
If you’d sold Amazon at the time, I couldn’t blame you… especially if you’d listened to pundits like Suria.
But it would’ve been the biggest financial mistake of your life.
Because today, Amazon trades above $1,750 – up 5,073% since Suria’s dire prediction. If you’d put a $1,000 stake in Amazon stock back then, it’d be worth over $50,000 today.
Friends, here’s what Ravi Suria didn’t understand: To make a fortune in the markets, you just need to find an industry at the very beginning of a massive, multidecade trend.
If you can get the growth trajectory right, you don’t need perfect timing. The phenomenal growth of the underlying trend will bail you out.
It’s a simple lesson that’s made me money across many asset classes and industries.
Amazon had all the telltale signs of phenomenal growth: It was at the very beginning of the e-commerce megatrend… And it had a long road of widespread growth ahead.
But here’s another lesson I learned…
In early-stage megatrends, the market is full of cycles of fear and fantasy. When that happens, each new flight of fantasy takes prices to new highs… and each bout of fear ends in higher lows.
And right now, we’re seeing fear grip another industry at the beginning of its own megatrend: legal cannabis.
Panic in Legal Cannabis
Last Friday, industry leader Aurora Cannabis dropped nearly 18% after releasing earnings.
Analysts punished the company for its poor sales (a 24% decline from the previous quarter). Aurora also halted construction on two facilities and converted $117.3 million of debt into equity to conserve cash.
Another cannabis bellwether, Canadian giant Canopy Growth, announced a 229% year-over-year increase in revenue… but a larger-than-expected net loss of about $283.4 million. Its stock dropped almost 16% on the news.
As major industry players, these companies set the tone for the entire cannabis market.
For example, the ETFMG Alternative Harvest ETF (MJ), which tracks the top cannabis companies, is down 7.9% since last week… and about 33% year-to-date.
Right now, the cannabis space is going through some tough times. The key is to remember: This down period will be temporary.
Here’s what I want you to focus on instead…
An Unstoppable Trend
According to Research and Markets, the global cannabis market is expected to reach $75.7 billion by 2026.
And Merrill Lynch estimates that non-intoxicating cannabis alone will disrupt $2.6 trillion worth of industries in the next few years.
This is the definition of a massive, unstoppable trend just getting started. For instance:
Last year, Mexico’s Supreme Court ruled its ban on recreational cannabis was unconstitutional. The federal government is now finalizing rules for the industry. So in Mexico, legalization is not a question of if; it’s when.
Meanwhile, in Canada, our sources tell us the government is working with industry players to eliminate bureaucratic hurdles that have hampered industry growth. They say this will increase the number of retail stores by as much as 200%.
And here in the U.S., the House plans to vote on a sweeping cannabis legalization bill this week. The Marijuana Opportunity Reinvestment and Expungement (MORE) Act would remove cannabis from the Controlled Substances Act. If passed and signed by President Trump, cannabis would go from being illegal on the federal level to legal… overnight.
Combined, North America has a potential addressable market of 380 million adults.
In the U.S., one type of cannabis (hemp) is already legal, and medical or recreational marijuana is legal in 33 states. In Canada, recreational marijuana is legal at the federal level. And as we told you above, Mexico will follow suit soon.
So remember, the genie is out of the bottle. There’s no putting it back in…
How to Profit From Fear and Fantasy
In the early 2000s, Amazon was trailblazing a brand-new online retail market. There simply wasn’t anything like it before.
Today, Amazon is sending traditional retailers to their graveyards. We’ll see a similar scenario play out in the cannabis space.
Now, to be clear, there’ll be more volatility and negative headlines ahead as this space develops – along with lawsuits and aggressive reports from short sellers.
We could see this pattern of fear and fantasy alternate for years. Meanwhile, the stocks in the sector could go up five, 10, or even 100 times or more.
So it’s important to recognize a massive trend and where we are in it. The earlier you get into a trend, the more money you’ll make as the market flip-flops between fear and fantasy.
And we’re still in the early innings of legal cannabis…
Hear me out when I say you must view these sell-offs as an opportunity to buy well-curated cannabis companies. Just remember to be rational in your position-sizing: up to $400 for smaller accounts or $500–1,000 for larger accounts.
Like all high-growth sectors, the cannabis space will be volatile for years. You’ll want to make sure you can sleep well at night by not risking any more than you can afford to lose.
As long as you’re positioned rationally, you can safely ignore the volatility and rely on the strength of the long-term trend of cannabis usage – which is firmly higher.
Let the Game Come to You!
Editor, Palm Beach Daily