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What this tiny socialist country taught me about the marijuana market

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From Justin Spittler, Editor, Casey Daily Dispatch:

Uruguay’s marijuana economy isn’t what you may think.

There are no coffee shops like there are in Amsterdam. There aren’t even dispensaries like there are in Colorado, California, or Oregon.

Buying marijuana in Uruguay is actually quite difficult. And that’s somewhat of a surprise.

You see, Uruguay was the first place in the world to legalize cannabis outright. Here, it’s legal to grow, sell, and consume marijuana.

So naturally, a lot of people arrive in Uruguay with “high” expectations. They think they’ll be able to easily buy high-quality cannabis. But that’s not the case at all.

I know because I was just in Uruguay…

I went there to spend some time with Doug Casey, who lives on a gorgeous ranch about 30 minutes from Punta del Este.

I also came to Uruguay to get a firsthand look at the country’s marijuana industry.

So, I spent a day in Montevideo, Uruguay’s largest city and capital, before heading over to Doug’s ranch.

There, I spoke with several locals about the country’s marijuana industry. One of those people, Mauricio, owns a cannabis shop in the heart of Ciudad Vieja, Montevideo’s historic center.

But this wasn’t a dispensary. Again, they don’t have those in Uruguay. This was more of a paraphernalia shop. It sells bongs, rolling papers, and clothing made from hemp.

Still, Mauricio was extremely knowledgeable about Uruguay’s marijuana industry. So, the two of us talked about the country’s market one afternoon.

According to Mauricio, marijuana legalization in Uruguay isn’t the success that the government and many in the media claim it is.

Instead, it’s somewhat of a disaster. Here’s why…

You can legally only buy marijuana from pharmacies in Uruguay…

That might not seem so bad. But you must understand something.

Less than two dozen pharmacies signed up to sell marijuana. And almost all of those pharmacies are located in Montevideo.

So it’s not that convenient to buy cannabis there.

The good news is that marijuana is dirt cheap in Uruguay. A gram only costs about $2. That’s about one-fifth of what a gram costs in California.

Of course, there’s a reason for this. And it’s because the pharmacies in Uruguay sell low-quality cannabis. According to Mauricio, it’s “rubbish.”

But that’s not the only problem with Uruguay’s marijuana industry.

To buy marijuana here, you must be a citizen…

You also need to go into the government’s system to buy cannabis. In other words, Uruguayans must provide personal information—and even their fingerprints—to buy cannabis.

A lot of Uruguayans aren’t comfortable doing this because they don’t know what the government will do with the information. So, they don’t bother buying cannabis legally.

Instead, they buy marijuana off the black market…

They do this so they can stay out of the government’s system, and because marijuana from the black market is apparently much better.

In short, Uruguay’s legal marijuana industry isn’t the massive success that some people think it is.

Of course, the program is only about a year old. It’s only natural that it would experience growing pains.

But I’m not confident that the program will get better anytime soon…

And there’s a simple reason for this.

Uruguay’s new president, Tabaré Vázquez, isn’t a fan of marijuana legalization. That said, most locals I spoke with don’t think Vázquez will roll back legalization. But they also don’t think that he’ll do a lot to fix the country’s marijuana program.

I’m telling you this because many marijuana investors believe there’s a huge opportunity in Uruguay. I even thought that I might find some interesting investing opportunities there.

Instead, I left thinking that the Uruguayan government is throwing away a huge opportunity to create jobs, generate tax revenue, and attract tourists.

The good news is that there are much better marijuana investing opportunities out there.

I know because I’ve been to the front lines of the global marijuana boom…

I lived in San Francisco, California, and Denver, Colorado last summer. And, as you probably know, these two cities are at the forefront of America’s cannabis boom.

But the best opportunity I’ve come across is north of the 49th parallel. Yes… I’m talking about Canada.

You see, Canada’s government started the process of legalizing recreational marijuana in April 2017.

Today, Canada’s Senate will hold a vote on legalizing marijuana outright.

If everything goes according to plan, anyone over the age of 19 will soon be able to legally buy and consume marijuana in most parts of Canada. That includes tourists.

And I can promise you this: Legalization in Canada will look a lot different than it does in Uruguay.

That’s because Canada’s government isn’t holding its marijuana economy back…

It’s supporting it.

Now, it’s not going to a completely free market. Those don’t exist anymore. There will be regulations. The Canadian government will take its cut of marijuana profits.

But it won’t handicap the industry like Uruguay’s government has done. I’m not the only one who thinks this, either.

Accounting firm Deloitte estimates that Canada’s marijuana market could become a $4 billion to $9 billion market once recreational use is legalized. Keep in mind, Canada’s marijuana market is currently estimated to be worth around $400 million.

That means Canada’s legal marijuana economy is set to grow at least tenfold in size… almost overnight.

That alone is reason enough to invest in Canada’s marijuana economy. But it’s not the only reason.

You see, Canadian marijuana companies are already exporting their marijuana, technology, and expertise all around the world. This puts them light-years ahead of the competition, including U.S. marijuana companies.

So, consider buying Canadian marijuana companies if you haven’t yet. Just understand that marijuana stocks are still incredibly volatile.

As always, don’t bet more money than you can afford to lose. Keep your position sizes small. And take profits as they come.

Regards,

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Justin

P.S. Crisis Investing editor Nick Giambruno has three Canadian marijuana companies in his portfolio that are primed for a huge rally. If you’re interested, you’ll want to get in ASAP… because of today’s important vote. It could be the biggest day in the history of pot profits. Click here to get all the details.


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Charts show steady investor optimism, more upside for stocks

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The stock market rally that began 2019 has not yet run its course, even with Tuesday’s Washington-induced surge, CNBC’s Jim Cramer said after consulting with technician Carley Garner.

“The signs suggest that this market can have more upside before the rally exhausts itself,” Cramer recapped on “Mad Money.” “Eventually the market will become too optimistic and stocks will peak, but we’re not there yet.”

Garner, the co-founder of DeCarley Trading and author of Higher Probability Commodity Trading, has an impressive track record. In mid-December, one week before the Christmas Eve collapse and subsequent rebound, she told Cramer that pessimism was peaking and stocks were due for a bounce.

But now that the S&P 500 has gained over 15 percent since those midwinter lows, it’s worth wondering the reverse: what if optimism is approaching its peak?

Lucky for Wall Street, Garner says it’s not. She called attention to CNN’s Fear and Greed index, which uses a variety of inputs to measure what CNN sees as investors’ chief emotional drivers.

Right now, the index sits at 67 out of 100, signaling more greed than fear, but still “a far cry from the extreme levels where you need to start worrying,” Cramer explained. When the major averages peaked going into the fourth quarter of 2018, the index hit 90, and according to Garner, “we usually don’t peak until we hit 90 or above,” he said.

Add to that the fact that only half of professional traders and investors polled for the most recent Consensus Bullish index said they felt bullish; the recent downtrend in the Cboe Volatility Index, which tracks how much investors think stocks will swing in the near future; and that, historically, this is a good time of year for stocks; and Garner sees more momentum ahead.

The S&P 500’s technical charts seem to uphold Garner’s theory. Its weekly chart shows fairly neutral readings for two key indicators: a momentum tracker called the Relative Strength Index and the slow stochastic oscillator, which measures buying and selling pressure.

“Even if the S&P 500 keeps climbing to, say, … 2,800 — up 2 percent from here — Garner doesn’t anticipate either the RSI or the slow stochastic [to] hit extreme overbought levels,” Cramer said, adding that the technician could even see the S&P climbing to 3,000 if it breaks above the 2,800 level.

If Garner is wrong and the S&P heads lower, she said it could trade down to its floor of support at 2,600, and if it breaks below that, fall to 2,400. But that scenario is highly unlikely and, if it happens, would be a buying opportunity, she noted.

The S&P’s monthly chart told a similar story, Cramer said. The index is currently trading at 2,746, between its “hard ceiling” at 3,000 and its “hard floor” of 2,428, he said, which means it’s “basically in equilibrium.”

“To Garner, that means going higher is the path of least resistance for the S&P,” the “Mad Money” host said. “Once the S&P climbs to 2,800, or perhaps … to the mid-2,900s, that’s where Garner expects things will turn south and the pendulum will start swinging in the opposite direction.”

“Remember, … Carley Garner has been dead-right, and the charts, as interpreted by Carley, suggest that this market still has some more upside here,” Cramer continued. “But if we get a few more days like this wild one, she thinks we’ll need to start worrying about irrational exuberance. For now, though, she thinks we are headed higher, and I agree.”



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What Jeff Bezos’ private life means for investors

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Daniel Ek, chief executive officer and co-founder of Spotify AB.

Akio Kon | Bloomberg | Getty Images

Daniel Ek, chief executive officer and co-founder of Spotify AB.

Cramer said Wall Street has misread Spotify‘s latest earnings report and guidance, and that misunderstood stocks like these give investors an opportunity to make some money.

he called out stock analysts like Everscore ISI’s Anthony DiClemente who have downgraded the equity over concerns about subscriber growth.

“I think this is lunacy,” said Cramer, who has been bullish on the music streaming platform since it went public last April. “It’s like the market just doesn’t know how to read this company or its quarterly guidance. In my view, Spotify is very much on the right track.”

The stock was rocked after a seemingly mixed quarterly earnings released Wednesday, Cramer said. After Spotify reported lower-than-expected sales, tight cash flow and conservative guidance across the board including subscriber growth, shares sold below $129 at one point in Thursday’s session.

But Cramer noted that the company beat expectations on operating profit and gross margin, which was 120 basis points higher than was asked for.

“I think the sellers were missing a lot of context here and the context is something I like to talk about a lot and it’s called UPOD. They under promise … and then they over deliver,” he argued. “At this point, CEO Daniel Ek and his team have established a track record of giving cautious guidance—under promise—and then beating it—over delivering.”

Spotify’s guidance includes planned investment costs and the company could “become the premier platform for podcasts,” a hot market for hard-to-reach millennials, Cramer said.

Click here to read Cramer’s full take.



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Charts show investors ‘can afford to be cautiously optimistic’

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Investors can afford to be “cautiously optimistic” at this point in the stock market’s cycle, CNBC’s Jim Cramer said Tuesday after consulting with chartist Rob Moreno.

Moreno, the technician behind RightViewTrading.com and Cramer’s colleague at RealMoney.com, sees a convoluted path ahead for stocks. After calling the December bottom, Moreno noticed that the Nasdaq Composite’s late-2018 decline was about a 24 percent drop from peak to trough.

That’s important because, in a bull market, stocks tend to see “periods of consolidation — pauses in a long-term bull run,” Cramer explained. “To [Moreno], the decline here looks very similar to what we saw from the Nasdaq in 2011, 2015 [and] 2016,” three consolidation periods of recent past.

If he’s right, that could be bad news for the bulls, who may have to wait at least seven months for stocks to break out of their consolidation pattern, during which they tend to trade in a tight range, Cramer warned. But Moreno still sees some opportunity for investors.

“If you believe his thesis about the market — that we’re in a consolidation period, one that will last until September — then you can afford to be … cautiously optimistic right now,” Cramer said on “Mad Money.”

Part of Moreno’s confidence came from his analysis of the S&P 500’s daily chart, which also included the support and resistance levels from its weekly and monthly charts.

Even after a 16 percent rally from its December lows, Moreno saw more room to run for the S&P based on its Relative Strength Index, or RSI, a technical tool that measures price momentum. The RSI, he explained, hasn’t yet signaled that the S&P is overbought, and the Chaikin Money Flow, which tracks buying and selling pressure, shows big money pouring in.

“Moreno thinks that these new buyers are the kind of investors who won’t be panicked out of their positions by short-term volatility,” Cramer said, adding that the technician sees about 3.5 percent more upside for the S&P before it hits its ceiling of resistance at 2,818.

But if the S&P manages to trade above its ceiling of resistance and return to its October highs, Moreno expects a “synchronized reversal” in the stock market that could crush the major averages, the “Mad Money” host warned.

“At least until September, Moreno says you should be a seller if the averages approach their October highs — that’s around 2,930 for the S&P 500,” Cramer said. “Eventually he expects a breakout from these levels, but it won’t happen any time soon.”

So, what’s the right move for investors? According to Moreno, not all is lost. He still expects to see strong gains — a roughly 7.5 percent move — before the current rally peters out. But he doesn’t want buyers to get too trigger-happy, especially considering the months of sideways trading he’s predicting for 2019.

“Until [September], he expects the market to trade in a fairly wide range, with the S&P bouncing between 2,350 and 2,930. For now, we’re headed higher, but he says you should use these key levels as entry and exit points until the consolidation pattern finally comes to an end later this year and the averages resume their long march higher,” Cramer said. “Even if he’s right and this rally will lose its steam after another 7.5 percent gain, that’s still pretty good, but I am very wary and it makes me want to do some selling after this run.”



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