Last week, I saw my mom for the first time since the pandemic began. She walked off the tarmac into the Santa Fe airport, grabbed me in a bear hug and wept uncontrollably.
None of the other passengers seemed to mind as we blocked foot traffic out of the baggage claim for an awkwardly long time — they understood. Finally vaccinated, we’d made it. We survived.
After composing ourselves, her first real question to me was, “So, where can we get some pot gummies?”
The past year was reality bending for all of us, but nothing was as weird for me as this question, so eagerly and innocently asked by my 73-year-old mom who had never tried marijuana. She is the same person who, 35 years earlier, thought the apocalypse was upon us when my older brother got caught with a joint.
The times really have changed. Now, my mom, a red-votin’ gal from North Carolina, was looking to get high.
At the first opportunity, we made a trip to the nearest dispensary, where my medical marijuana card got me in the door before recreational legalization takes effect June 29.
With the eagerness of an arthritic elder relishing the idea of a good night’s sleep, my mom read the menu and decided on a bag of gummies and a hunk of chocolate that together could incapacitate the Albanian army.
At that moment, I started feeling bullish on the future of the marijuana industry and considered investing in pot.
However, the fundamental analysis of marijuana funds is a bit hazier than my initial enthusiasm.
Like the dot.com bubble, cannabis investing is less about track records and business models than exuberance, even if that exuberance is not entirely irrational. I suspect we’ll see bubbles burst in the pot craze before it enters a more mature, consistently profitable stage of development.
For now, the industry is fraught with a host of legal hurdles that make doing business and investing difficult. Most pot stocks and funds can’t even trade on U.S. exchanges, and local pot businesses can’t use traditional banks because marijuana remains illegal at the federal level.
Cannabis investments also tend to be extremely volatile while profits are smoky.
As an example, one of the oldest and largest pot funds, called ETFMG Alternative Harvest (MJ), posted an uninspiring total return of +13.9 percent since inception in December 2015 to April 2021, compared to the whopping +123.8 percent gain of the S&P 500.
MJ’s largest holding, Tilray Inc. (TLRY), has negative earnings per share, making the active managers of MJ appear half-baked.
For those of us who care about the health of our planet, pot funds do not score particularly well on sustainability ratings either. For example, Philip Morris, Altria and British American Tobacco are among MJ’s top 10 holdings. However, most pot stocks and funds are not large or old enough to have a sustainability rating at all, so their environmental footprint is hard to track.
The negative health impacts from vaping or smoking pot, the problems from addiction and the long-term effects on brain function from persistent use should also concern ethical investors.
Even though cannabis investing has gotten skunked lately, I’m more optimistic about the tax revenue from marijuana to boost our state coffers and bring much-needed economic development to our anemic economy. A fiscal impact report estimates that New Mexico could add about $20 million to its general fund in the first full year post-legalization and create over 11,400 new jobs.
Other benefits are even harder to quantify: The tax revenue saved by not incarcerating our fellow citizens for possessing a dried flower, as well as the social capital gained by slowly ending one front in the racist war on drugs.
As we checked out of the dispensary with our goodies, my mom casually turned to the cashier and dropped another bombshell: “Can we please get some psilocybin as well?” I picked my jaw up from the floor as he gave her a huge smile and said, “No, not here. Not yet.”
Doug Lynam is a partner at LongView Asset Management in Santa Fe and a former monk. He is the author of From Monk to Money Manager: A Former Monk’s Financial Guide to Becoming A Little Bit Wealthy — And Why That’s Okay. Contact him at douglas@longviewasset.com.