The Wolf Of Weed Street Becomes A Known Entity
Our guest Jason Spatafora first made a name for himself—or rather, an alias—as the Wolf of Weed Street back in 2014 and then successfully parlayed the audience he’d garnered into a number of tech and marijuana startups, among them marijuanastocks.com. Jason closely follows the politics of marijuana decriminalization as the issue comes up for a popular vote in more US states every election year, and he’s also a keen observer of the business side of the industry.
There are two fundamentally different classes of marijuana legalization: medical use and recreational use. Steve asks how this divide is shaping up in various state markets. Noting that pot is still a schedule 1 controlled substance—meaning that the federal government recognizes no legitimate medical uses of the drug—Jason says that most of the companies working within the marijuana industry are playing support roles: vendors selling grow lights and fertilizer for example or companies making child-proof packaging. Some big biotech companies are experimenting with creating products derived from compounds found in cannabis, but most large companies are wary of investing in an area whose legality is still so unsettled, and where the profit-making potential so uncertain.
Why Does Big Pharma & Biotech Reject Marijuana?
As a sidebar, albeit one with deep relevance to the topic, Jason adds that he finds it absurd that marijuana is classed with heroin, cocaine, meth, and other hard drugs when falling coconuts kill more people than weed and, more seriously, untold thousands have died from prescription opiates and many thousands more have become opiate addicts. Jason is also convinced that the lobbying efforts of big pharma and biotech firms have kept marijuana scheduled as a class 1 narcotic, primarily because they want to control the development of new drugs derived from cannabis and because they see legalized pot as a business threat. The DEA and federal judicial officials are beholden to big pharma and biotech companies on the pot issue whether they like it or not, though the new US Attorney General Jeff Sessions has made it clear that he believes in maintaining marijuana’s criminal status as a first principal. The reality in 2017 is that federal employees are still enforcing criminal statutes on marijuana, albeit unpredictably, and disrupting the newly legalized marijuana industry in states where citizens have voted to decriminalize.
Federal Banking Restrictions On Dispensaries Has Limited Effects
One of the important ways in which marijuana businesses have been stifled and limited is by having been denied the right to open an account with a federally chartered bank. This means that cash generally stays in a vault on-site until it can be put to use elsewhere. This has led to a minor boon for companies that provide security and transportation to cash-flush marijuana dispensaries Other companies offering ancillary products—everything from irrigation and LED grow systems to “vape pens” and product packaging—are naturally just focused on legal states, but some of them are booming.
Medical R&D Into Cannabis Therapies Marches On Outside Of The US
Broaching the subject of investing in the marijuana space, Steve returns to those biotech firms doing R&D in the marijuana field, asking Jason what they’re trying to accomplish and what they’ve accomplished in this area so far. A lot of research has been done at non-US biotech companies, where they seem to be encouraged by the number and type of effective therapies that can be created, including a well-known treatment for childhood seizure disorder. Some new treatments for Crohn’s disease, sleep apnea, and an anti-nausea medication for anorexics are also reaching the marketplace. Jason believes these are all threatening to a greater or lesser degree to big pharma and biotech because of the difficulty of patenting medications based on a relatively inexpensive plant. He sees the $3 billion/year pain medication industry as being particularly threatened and, therefore, determined to kill research in this area and keep marijuana listed as a schedule 1 drug. Steve admits that he hopes that the reason for the impasse in medical marijuana R&D isn’t that companies are effectively “capturing” regulators, but allows that he may be naive for hoping so.
Investing In Marijuana Industry Stocks
Turing to the subject of investing in the industry, Steve says he’s seen a flurry of ads on Facebook pushing the notion that now is the time to invest in marijuana companies, that people are making a killing in very short term stock positions. He suspects that a lot of this activity is coming from charlatans pitching penny stocks for the same old reason they’ve always pitched penny stocks: making big bucks off of people’s greed. He asks Jason to provide some guidance on investing in an industry rife with hype, what the market looks like right now, and whether one should even take the plunge at all. Jason concedes that he has both made and lost a good deal of money investing in marijuana stocks, and that’s he learned a lot from his mistakes, ultimately realizing that he needed a strategy for buying and selling these stocks. He advises people to have an exit plan: don’t get stuck with loser companies and, better yet, don’t drink the Kool-Aid to begin with.
He claims that he doesn’t recommend marijuana stocks to anyone and holds the line on not contributing to the hype. Instead, he looks for verticals within the industry that he’s convinced will have sustainable growth. It’s important to get to know the financial fundamentals and growth prospects of companies before investing in them. He does see some room to speculate—with money that you don’t mind losing—when news events occur which create a lot of volatility for pot stocks. The election was such an event, one that caused a lot of upside thanks to the three states which passed new marijuana decriminalization laws. The appointment of Jeff Sessions as AG was another, this time in the opposite direction. Steve trots out the old Wall Street adage: “buy the rumors, sell the news” to describe an event-driven investment tactic. Jason agrees and adds that he makes the point to people who ask him about investing in this industry that the price you buy the stock at ends up being more important than the one you sell it for. Along these lines, bad news can create a great opportunity to buy at a discount to what a company is worth. That said, Jason believes that it’s wise to approach investing in this industry as a long game. Chasing stocks that are going up is a good way to get burned. If you’re patient and focus on just a couple of stocks, you will eventually be able to buy in at a price with less downside risk.
Dispensary Zoning Laws In Colorado Fail To Hamper Industry
Wrapping up their conversation, Steve asks Jason for his observations on the Florida vote to legalize medical marijuana. Jason argues that Florida appeared to be following the Colorado model, which he explains is based on zoning requirements: no dispensaries within 1000 feet of a school, minimum distances between dispensaries, no signage, no language about getting your medical marijuana card on premise. While many people expected these regulations to be a death knell for weed entrepreneurs, in fact, it’s turned out to be a great success on multiple levels: tax revenues are up, opioid overdoses dropped 25%, and because of the banking restrictions, many dispensary owners are investing in local real estate, helping to lift prices in the neighborhoods where they’re located. Despite the confusion between local and federal laws, the future looks as bright as a hundred grow lamps for the marijuana industry’s growth.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: In early 2014, my next guest successfully created and marketed an anonymous alter-ego known as the “Wolf of Weed Street,” and he parlayed a social audience into several tech and marijuana media startups such as marijuanastocks.com. We spoke to him a couple of years ago—in 2015, as a matter of fact—and I’ve asked him back to kind of give us an update on the state of marijuana in the United States, and now that Florida has approved medical use of medical marijuana, what’s happening in the Florida area.
Hey, Jason, welcome back.
Jason Spatafora: Hey, Steve, how are you?
Steve Pomeranz: So, States now are starting more and more to approve marijuana use; it’s divided into two basic categories, the medical use, and recreational use. How is that starting to divide up in the markets that you are covering?
Jason Spatafora: Well, I mean, it depends where you’re investing, right?
So, in Canada, they’ve got a legal medical marijuana legislation. And they’re also gunning for recreational this year. In the United States, cannabis is still schedule one, so basically, a lot of the companies that are playing in this area, this sector, are ancillary still in nature unless you are a biotech firm doing something with some kind of drug treatment.
Steve Pomeranz: Some working with the molecules, so to speak.
Jason Spatafora: Yeah, exactly.
Steve Pomeranz: Yeah, when you say schedule one, for those of our listeners who don’t know what that is, tell us what schedule one means in the drug world.
Jason Spatafora: Right. So, in the drug world, schedule one basically means—and it’s an archaic system, let me say that first, that there is no basis, there’s nothing good that comes from the plant that can be used for pain, for anything.
So some schedule one drugs are like crystal meth, cocaine, ecstasy, magic mushrooms, stuff like that. So, I mean the system is—it’s pretty ridiculous considering marijuana has never killed anybody—you can’t overdose from marijuana, in fact, peanuts kill more people per year than marijuana or falling coconuts for that matter.
Steve Pomeranz: Well, let’s watch out for those coconuts. [LAUGH] So it’s like saying that marijuana’s on the same playing field as heroin.
Jason Spatafora: Correct, exactly, and I talked to the DEA about this. And I asked them, point blank, what’s worse for you? Gun to your head: are you going to shoot up heroin or are you going to smoke a joint?
And you’re like, well, smoke a joint. So, they understand it, but that’s the system, and the system is propelled by lobbies. The biotech industry does not want to see marijuana be taken off of that scheduling.
Steve Pomeranz: Yeah, so, but it’s a slow process because, again it’s a state by state decision, but on the other hand, no matter what the states do, it’s still federally illegal and that’s got to cause some confusion and some problems, for example, I guess if you have a dispensary where you have a business selling recreational use or medical use, you can’t open up a bank account because you can’t work with a federally-chartered bank. So, I want to get into that in a minute. It does create some problems.
But you had mentioned biotech stocks, let me back up. The last time we spoke, really the only place that you could invest and try to take advantage of this new burgeoning market was really to buy those companies that provided fertilizer or other ancillary products to the market for growers, right?
Jason Spatafora: Correct.
Steve Pomeranz: So, has that changed at all in the last couple of years?
Jason Spatafora: No, not all. The only thing that we’re seeing is more companies coming out and servicing the legal cannabis industry. Because of the regulations, banking being one of them, if you’ve got a dispensary you have to keep a vault because there’s banking issues.
Steve Pomeranz: Yeah.
Jason Spatafora: A lot of these dispensaries have a lot of cash on hand so you’ve got companies that are providing security, providing transportation for cannabis. You’ve got other companies out there that are providing packaging. Because of the regulations, packaging has to be child proof and so on and so forth.
And then you’ve got the other companies that are providing LED lights, irrigation systems for the growers that are just kind of all over the place. Everything from vape pens to, I mean, you name it. The whole industry is just kind of, especially in the United States, it’s just servicing the legal states.
Steve Pomeranz: Yeah. Are vape pens used much, for using marijuana? I mean, I wouldn’t even know.
Jason Spatafora: Well, now they are. Now what we’re seeing is extraction. So, extraction is basically converting that flower or flowers basically being the name for cannabis, the buds, the green plant.
So what they do is they convert that flower into an oil. And those oils and extracts are put into certain vaporizers which are just kind of cleaner to smoke. And they don’t smell the way smoking a joint smells.
Steve Pomeranz: Right.
Jason Spatafora: And people seem to really enjoy them. And the extraction business is just booming.
Steve Pomeranz: So, the new area to invest in, now you had mentioned it briefly before, is this idea of biotech stocks which to me, they’re breaking it down, looking at the molecules and trying to synthesize the molecules and other things. What specifically, without naming any particular companies, what are they trying to accomplish, and what have they accomplished so far in the biotech area?
Jason Spatafora: Yeah, so basically, scientists from other countries and firms from other countries have studied the plant extensively. They see that therapies can be created and are useful, therapies to treat seizures in children.
Everybody in Florida, for example, in 2014 they passed a law for Charlotte’s Web. These are therapies such as that. But the therapies also extend to Chron’s disease, sleep apnea. There’s a company out there that markets a drug that is for treating nausea for people that are anorexic so that they eat.
So really there’s just so many different ways that they can create these drugs, which is also scary for some of the larger biotech players out there. Especially when it comes to pain management, like oxycodone is a $3 billion a year industry.
Steve Pomeranz: Yeah, they don’t want to see that eroded by some compounds based on the marijuana plant, that’s for sure. Or it seems to me they’ll end up buying these biotechnical companies, and they will be a player themselves.
Jason Spatafora: Yeah, exactly. And a lot of these firms are just kind of catching up which goes back to why they don’t want to see the schedule one change.
Steve Pomeranz: Well, I hate to think that the reason that isn’t changing and are not making an argument in either direction is because of the big money controlling the lawmakers. But maybe I’m naive but, hopefully, that’s not it. I want to talk about this idea, I’m starting to see, posts on Facebook. These are really advertisement and they say, “now is the time to invest, you’ve got to get in right now, so and so made lots of money on stocks in just three weeks.” So now the hype is starting, and a lot of the charlatans are getting in there and because a lot of these stocks are penny stocks, you can buy a million shares for next to nothing.
So what is the market in terms of investing-wise to a lay person, what does it look like, and how does one get involved? And should one get involved?
Jason Spatafora: Well, I mean, look you can make a lot of money in this industry. Before I made any money, I lost a lot of money; and I learned from those mistakes, and then I realized very quickly that I need a strategy for buying and selling these.
Yes, you can buy one that goes up 1000, 10,000%, I’ve seen it happen. But the caution that I always tell people is, look, don’t put in anything that you’re not afraid to lose. And have an exit plan. You don’t want to get stuck in something, you don’t want to drink the Kool-Aid, so to speak.
Steve Pomeranz: Yeah.
Jason Spatafora: End this hype. I don’t tell anybody. I don’t recommend stocks to anybody. What I do now is I just find the verticals within the industry that I think can have sustainable growth.
Steve Pomeranz: Yeah, so you’re looking at them as real companies, not just as numbers moving on your phone on an app looking at the stock price, you’re looking at them as real companies.
Jason Spatafora: Right, and then I’m also keeping track of the catalysts because the pop stock market is event driven. So, the event this year, or in 2016, I should say, was the election.
Steve Pomeranz: Yeah.
Jason Spatafora: You had California that had recreational, you had Nevada that had recreational, and you had Florida that had medical, which were the three biggest states out there.
Steve Pomeranz: That’s a big one. Yeah.
Jason Spatafora: And that hype, yeah, it creates an opportunity, getting in at the tail end. Once you start seeing those ads, “buy my newsletter for $50, make a million dollars,” that’s crazy, then you should go at it slower.
Steve Pomeranz: And it may kind of be a sign that the market is just getting really frothy. Or people are just trying to take advantage of the uneducated and people looking to make a fast buck, which is…that’s been going on since time began.
You talk about events, this idea that there may be an event coming up, like, you mentioned, the elections. You may buy one of these in anticipation of the event. There’s an old Wall Street saying, “buy the rumors, sell the news.” So, buy it prior to and then, when the money actually gets announced and then it spikes up, then that will be the time to sell in and just don’t be greedy.
Jason Spatafora: Exactly, when you’re playing in this market you have to play a long game. You don’t want to hit home runs every time you go on and invest, and what I always tell people is, and—sometimes I disagree—is look, you’re going to make your money where you buy, not exactly where you sell.
Steve Pomeranz: Right.
Jason Spatafora: Because if you’re too eager and you chase some of these stocks because you see them going up, you’re probably going to get burned. But if you’re patient and you’ve got your eye on a couple of stocks and you sit on the bid and you get that price, you think the risk is mitigated, somewhat. That’s the time to buy.
Steve Pomeranz: Well, it’s always the question, and that is really good advice, Jason. I mean, I’ve been doing this for 35 years. But if you know a situation really well; you know a company; you know their business; you know what their true prospects are. And for some reason, some news comes out—let’s say it’s just news that the attorney general made a negative remark, okay, nothing to do with this particular company as this example—and the company gets really killed. Again, it is about price. If you can come in during that period of time when everybody’s selling and worried about the future, and then hold on, be patient. And then there’s a time later when the reverse happens and something positive happens, some event again that happens that’s positive, and then you can sell it then because it is what you pay that matters. More really, I think, than what you own.
Jason Spatafora: 100% to what you’re saying. And what investors need to understand is that irrational exuberance works both ways. When Jeff Sessions, when it was announced that he was going to be the AG, the pot stock market got killed. Now it’s just panic selling. But it also created an opportunity for people looking to get into the market and buy things at a 50% discount.
Steve Pomeranz: Right.
Jason Spatafora: And exactly what happened in 2014 because there was a little mini-bubble bursting, which was like January 10th. It created an opportunity because these things would bounce, cooler heads prevailed, and the market ended up doing unbelievably well.
Steve Pomeranz: My guest is Jason Spatafora, aka The Wolf of Weed Street, his website is marijuanastocks.com. We’ve got a couple of minutes left, Jason. I want to focus on Florida a little bit. So, Florida passed the medical marijuana law by a 70% voting margin. And now, as has happened in Colorado and other states, entrepreneurs are out there looking to exploit the situation by opening up dispensaries and other things.
You mentioned to me off air that Florida was following the Colorado model, what is that?
Jason Spatafora: Basically, when it came to zoning. So, you had to be at least 1,000 feet from a school. Dispensers had to be such and such distance from each other. And it was just going to be tightly regulated, no signage. No flashing lights, if you see somebody on the street that has a sign like “get your medical marijuana card”, that’s a scam because that’s actually illegal. That’s good to know there is a way to go about things. But, yeah, I mean the Colorado model worked out very well, and the sun still came up. Everybody thought it was just going to be a disaster.
Steve Pomeranz: Yeah.
Jason Spatafora: Opioid overdoses dropped 25%. Tax revenues boomed. And what I always tell people in states that are against it. And they think, well, if there’s only going to be so many people that benefit from it, the people that are in these zones where they could have dispensaries.
They’re actually wrong because of the banking limitations, a lot of these people that are making tons of money in cannabis, there’s only one way to legally get your money back into the market, and get it into the bank.
Steve Pomeranz: And what is that?
Jason Spatafora: Which is real estate.
Steve Pomeranz: Real estate, so money gets recycled into real estate, real estate prices rise in those areas. So, that’s one place to look for things. Interesting. Unfortunately, we are out of time I guess. Jason Spatafora, AKA the Wolf of Weed Street, finding out more about what is going on in the world of marijuana.
The world state-by-state and some trading ideas on how possibly to profit from it. To hear this segment again and to read it on our website, don’t forget to go to StevePomeranz.com. And, of course, Jason’s website is MarijuanaStocks.com. Thanks, Jason, appreciate you coming back.
Jason Spatafora: Thanks, Steve.