Over the course of this column, I’ve covered some controversial investments, like firearms, some gray-market items like video game items and cell phone minutes used to launder money, to the plain illegal counterfeit designer bags. Today, though, is a bit … hazy, shall we say, in that some of these goods are legal in some areas, while strictly controlled or illegal in others. It’s time to talk drugs.
Before we begin, a disclaimer. As already noted, these substances may be illegal in your state, region, or country. None of this is legal advice — invest at your own discretion. If you are looking to be the next Walter White, you’ve come to the wrong column. If you are looking for a bit of history, especially recent developments and ways you can invest, read on.
Obviously, the biggest name in the industry is marijuana. It’s slowly becoming legal in the United States — Utah, of all places, just partially legalized it in the recent midterm election — and was recently legalized in Canada. Thai lawmakers are considering legalizing medical marijuana. All of this makes for prime investment opportunities.
Why, you ask, do these events make for good investment opportunities? Canada is running out of weed because it’s selling so fast. The city of New Brunswick did $2.1 million in cannabis sales in the first week of legalization.
Did I mention that Aurora Cannabis, a marijuana producer, had a quarterly profit of $104.3 million, up from $3.6 million a year ago? In November, after Attorney General Jeff Sessions resigned, marijuana-related stocks shot up in price, as well.
However, there are additional drugs to consider. There’s a sort of gray market where some drugs may be legal in some areas, while not in others, but there’s still money to be made. For example, in China, while every citizen has healthcare, it often does not cover needed drugs. Instead, people opt to import drugs that may not have been approved by the country for use. Chinese in need of pharmaceuticals not yet approved often import from India. Think the Dallas Buyers Club, made famous by a Matthew McConaughey movie, where a Texas man, Ron Woodroof, smuggled drugs not yet approved by the FDA for himself and other AIDS patients. The drugs were effective, but the FDA’s approval process was slow and unhelpful.
In other cases, the drug may be legal in some parts of the country, but banned in others, like kratom. Part of the coffee family, kratom is often taken in pill or tea form and, depending on the strain, can act as a stimulant or sedative. The FDA was set to classify kratom as a Schedule 1 drug in 2016, but then declined to file paperwork. Meanwhile, people have used kratom as a homeopathic alternative to aid with opioid withdrawals, and researchers claim scheduling kratom could stifle research into the drug.
One last example: orphan drugs. Unlike the previous two examples, orphan drugs are approved by a governing body and have gone through rigorous testing for likely close to a decade. The major problem is that they target a specific group of people, like those affected by Lou Gehrig’s disease. On the other hand, they are great for investing as approved drugs gain IP protection for 7 years in the US and 10 years in the EU, are fast-tracked by the FDA for approval, and have much, much higher revenues per patient per year. The drugs, then, often have large profit margins.
How to Invest
You have a couple options when it comes to investing. First, and most obviously, is just buying the product itself and selling it. Again, a disclaimer, as this may be illegal in your area: Check your local laws first. Creating your own buyers club or selling an item that is legal where you are but illegal where your buyer is could come with legal consequences. You’ve been warned.
Second, there are stocks and ETFs. Aside from the aforementioned Aurora, there are other companies, like Medical Marijuana Inc., the Marijuana Company of America, or Canada’s Canopy Growth Corporation. CGC, for example, is not profitable, as it is spending money currently on productions and capacity, but in August it received a $4 billion investment from Constellation Brands. There are also ETFs, such as the Horizons Marijuana Life Sciences Index.
Finally, there’s investing in infrastructure. You could, for instance, invest in a single dispensary. However, there are also products and services that the business requires to operate. Growing marijuana, for example, requires specific lighting, air filtration, and fertilizer. Investing in the makers of these products could be beneficial as need increases as marijuana is further decriminalized.
You can also invest in the supply chain, as pharmaceuticals require chain of custody tracking and tight inventory tracking. This means inventory control and warehouse space, as well as shipping the product. To invest in the process, you can invest in warehouses, shipping companies, or companies that provide inventory tracking and management software. While not directly investing in the business of drugs itself, they are all but required for the industry to function.
There are some risks. It’s a volatile market, and there will likely soon be too much product in Canada as supply overcompensates for demand. Timing will prove vital, as federal laws could relax, or states could vote to legalize, at least in part, some drugs. The opportunity for investment, however, is still currently viable.