The long-awaited day is almost here. Wednesday, Canada will legalize cannabis -- and I think it is a watershed day for marijuana.
But I think it will also lead to a waterfall of stocks as Johnny-come-lately buyers try to catch the wave, betting that Canada is just the beginning and the long lines we expect to see at stores are going to be replicated daily.
To me, that's just plain wrong. I am very worried that buyers have bid up the stocks of dozens of Canadian companies of all shapes and sizes, and many of them are not worth speculating on. In fact, I think that some of them may not be all that on the up and up and lack any sort of transparency we should get from a company's financials before we pull the trigger -- so I suspect the stocks will get hit.
Okay, enough negativity -- especially because I have probably been the biggest apostle of the group and have had cannabis company after cannabis company on Mad Money.
Why do I persist?
Let me tick down the reasons.
First, I think that cannabis might be the most disruptive force since Amazon (AMZN) . That's right, I think that there are as much as $500 billion in sales that are going to be under attack from cannabis in everything from carbonated beverages and sports drinks, to tea, coffee, snack and tobacco -- and all sorts of health care uses for both humans and pets.
I believe we will soon see studies showing you that using cannabis is a much better, safer way to fall asleep than current over the counter and prescription drugs. We will soon see studies that demonstrate that cannabis reduced swelling better than pretty much anything.
And, most important, it could strike a dagger into the heart of opiates. What a positive for society that would be.
Yes, it is true that we really don't know how to regulate it. If a drink is 30% THC does that mean it is like 100% proof alcohol? Will it take the alcohol business by storm because it has no calories? Or will it just be additive to the mix.
We don't know.
But we do know that the entire industry's got a market cap of about $30 billion right now -- and if there's $500 billion in all sorts of goods and uses that will be disrupted, that's not a very big market cap group.
Moreover, there are really only a couple of companies that have the scale to take advantage of the opportunity.
Which brings me Canopy Growth (CGC) -- a $9 billion company that Constellation Brands (STZ) has taken a very large stake in, one that can be moved up to more than 50% when Constellation wants to. Constellation has given Canopy a $5 billion warchest so it can be the only company in the industry that can have a full line of cannabis products with a huge capacity to make money long after October 17.
Will it get hit Wednesday? I think it probably will be. But I think that it can be bought, because it is a New York Stock Exchange listed company and because of the Constellation put. While am at it, can I just say that Constellation may be the cheapest cannabis stock of all. As Canopy CEO Bruce Linton told me at our conference this weekend, he's been buying the maker of Modelo and Corona because it is possible that, one day, it could make up a huge part of Constellation's market cap, especially as the stigma disappears. I don't know how long that will take to happen. When Canopy opened for trading on the New York Stock Exchange, in a break with tradition, they would not let Canopy ring the actual bell.
But now I think that Canopy will become the one stock the institutions reach for after the selloff. IF you don't own any now, wait. I think you will get better prices. The opportunity is so great, that you could argue why not just go buy.
Up $8 on Monday, is just too much for me. The entire group is overheated.
But when we get the great cannabis blowoff, Canopy and Constellation are the ones to buy.