Here are some interesting investment ideas for investors who believe that Ron Paul and Barney Frank’s Marijuana Bill will pass the House. Personally, I think there are far too many vested interests and lobbyists in Washington for something as obviously pro-American, Democratic, and Libertarian as this bill is to actually pass; but in a desperate attempt to make the nation’s politicians appear human the bill will likely head towards a Hail Mary vote anyways as a Mea Culpa of sorts which everyone can agree on voting against before it ever gains serious attention. While I commend both Ron Paul and Barney Frank for taking a bipartisan and unbelievably patriotic lead on this tremendously important issue, I have to put my investor and odds-making hat on to begin viewing the investment landscape a bit differently now that pot may be made legalized. While the analysts say this will never pass, one day a truly Democratic society as great as ours’ must embrace all cultures and ways of life — is it fair to make a religious, medicinal, spiritual, and healthy endeavor a crime simply because some people don’t understand this substance?
What someone else does with their free time is not my concern, and clearly Marijuana has not stopped people like Steve Jobs, Peter Lewis of Progressive, George Soros, Andrew Lahdke, and many other great investors and entrepreneurs from making their marks in American business history. Why should a behavior as harmless as smoking an herb turn someone into a social or economic outcast? At least being Gay, African American, a Single Mom, Hispanic, Asian, or Mentally Handicapped does not stop Americans from finding meaningful employment or carry severe jail time. The Draconian treatment of the use of something much less harmful than alcohol which has proven medicinal qualities seems to me to be highly Un-American, inhumane, close-minded, thick-skulled, and downright mid-evil in its hypocrisy and stupidity. To see the so-called conservatives laughing this out of the Legislature is incredible considering that conservatives are supposed to stand for small government, states rights, free markets, and fiscal restraint. Marijuana prohibition is one of the most economically wasteful and morally corrupt policies in the United States because this “war” simply hands criminal drug organizations illicit profits instead of making the industry similar to that of Tobacco or Alcohol which can be highly regulated and taxed. What is clear to me is that so called conservatives in the legislature are simply either on the payroll of Mexican cartels or are incredibly unintelligent.
As the Christian Science Monitor recently reported,
“No longer can reform advocates be laughed off as a bunch of Cheech and Chongs,” says Tom Angell, media relations director for Law Enforcement Against Prohibition an international organization of criminal justice professionals who claim first-hand awareness of the waste and harms of current drug policies.
“Hopefully having this national debate will help more people to understand that marijuana prohibition harms public safety by giving drug cartels and gangs a huge source of tax-free profits, just like alcohol prohibition did for Al Capone and his colleagues during the 1920s and 30s,” says Mr. Angell.
VOXX — Trading at just 7.4X earnings, 4.9X EV/EBITDA and for only 43% of book value, we think Audiovoxx is a good investment whether or not the Paul-Frank Bill (not to be confused with Dodd Frank) passes or not. Audiovoxx makes basically all of the components involved in the “Pimp My Ride” shows for automobiles as well as car security, satellite radio, universal remote, and diversified electronics industries. The company has been, well, mildly profitable at best over the past few years but we think an increase in stoners or just a gradual acceptance of their culture would be a bog boost to the company’s top line, which may or may not eventually translate into bottom line growth. We like the stock regardless of the passage of Paul-Frank.
IMAX — Imax is a name that I have been bearish on in the past, but with the passage of the Paul-Frank Mary Jane reform bill we think this stock could trade, well, much “higher.” IMAX is by no means a cheap stock, but the company has plenty of momentum behind it and we like the theatre and movie industry in general given that we think a recession (or extension of the current depression) is in the cards. With that said, we cannot figure out why studios are handing their content out for free via Netflix, Hulu, and Redbox when there are still thousands of retail locations trying to sell product via Blu Ray and DVD — the format is not the problem, just the pricing (DVD is still a digital diskette, after all, needing only one set top box and we wonder what the studio chiefs and media are smoking — hint it’s probably not the reefer). Stoners are no stranger to job losses and unemployment yet they always find a way to catch the latest flick. If Paul-Frank passes, we think IMAX shorts should be covered immediately. If Dodd-Frank passes, well, we will try to figure out if anyone has actually read the entire bill in question and we also think that it will hurt gold and silver prices while helping small cap value investors to get rid of entitled, bloated managements who earn overinflated salaries and pay packages more often than not. All in all, I am a fan of Barney Frank (and will vote for Ron Paul), but I don’t like bailouts as a rule — whatever happened to “if you break it you buy it.” Right now, if a bank makes a losing trade, we all pay for it.
PEP — Nothing says “munchies” like a can of Pepsi and a bag of Dorito Chips. As much as Wall Streeters claim to be straight laced front row of the class nerds, most of them spent many of their years in high school sucking down Mountain Dews and pulling down hits from the old waterpipe. Then again, if you were in upper management at Lehman you may have had to hit the bong for upward mobility as part of your job description, though we cannot discriminate against those who openly laud the chronic in the fund management industry. Just look at Andrew Lahdke — he certainly hit the nail on the head regarding Wall Street’s prejudicial view of potheads. Pepsi shares are likely fairly valued here, but their brand identity is a siren call to pot heads around the world and legalization will surely only help sales of their products as stoners will have extra money to buy Pepsi products and the gangsters and cartels will be out of power across the globe.
DPZ — Domino’s is a company that I have not followed for some time, though their pizza has improved markedly over the years. I like their core value proposition and think that their model is somewhat recession proof. Again, if weed is legalized I think DPZ will get a boost to earnings as stoners will be paying much less for their addictive activities (the price of pot will plummet) and will be able to go out and buy products from real companies. What skeptics need to grasp is that this is a huge boost to the economy — pot heads won’t have to spend their entire paychecks with the Mexican Mafia if this passes. (not that there is anything wrong with the Mexican Mafia — I have a family that I love, after all, and am certainly not a snitch) DPZ seems reasonable at current prices with a 16.88 PE and a forward PE of only 14.45X. The company has also reduced its debt in recent years and sports an EV/EBITDA of only 10.8X, which is pretty good considering it has been a private equity shop play-thing over the years like a Wendy’s or Burger King.
PSUN — Pacific Sunwear has been hit hard in recent months with the stock down some 65% or so from recent highs. The company has been plagued with losses as the “tweenyboppers” have been growing up and are now dressing in Abercrombie and other hideous, more preppy attire. If Paul-Frank passed, I would think PSUN could be a solid turnaround candidate with their surfer oriented lifestyle brand and low price to book value ratio. In fact, I am interested in this stock with or without Ron-Frank because PSUN is trading for a small discount to tangible book value which may give it some pop appeal similar to the run that WTSLA displayed back in 2004 and 2005 — back when Lady Gaga was still in high school and Paris Hilton was still considered to be a lady of virtue. (I know it seems like a million years ago to me too….)
APOL — “Learn how far your mind can take you, at Apollo College”: well, apparently, not far enough. Now that Federal regulators and former students have cracked down on this company and others in the online college space for not delivering on their promise of a better future, we think the stocks could actually rebound a bit if the suits and rules reform dies down. Sure, the idea of going to college in your pajamas is appealing, but as far as getting a job out of the deal, well, that’s another story altogether. If Marijuana is legalized, however, we expect enrollment to grow here as students will inevitably be able to take classes on growing weed online from this purveyor of “higher” education.
KKD — Although Krispy Kreme stock is about as rich as its doughnuts right now, we think the legalization and taxation of the “chronic” would provide a strong revenue and bottom line boost for this company. At 50 times earnings, KKD is certainly not a cheap stock. That said, we would not go short the name until Ron-Frank is officially laughed out of the House of Representatives. Personally, I find it funny that a bunch of States-Rights, supposedly pro-liberty Tea Party members are going to vote down legalizing Marijuana which has saved many a cancer patient from intense pain and is something most of them have smoked in the past. That said, politicians are total hypocrites in general by and large and these spineless so-called libertarian Tea Party Republicans (a group I admire for standing up against Nanny State politics) will likely vote down Paul-Frank even though they will vote for shrimp on treadmills, Dodd-Frank, making gold and silver OTC trading illegal, and sentencing the Liberty Dollar guy to 15 years in prison for making collectors coins.
JACK — One thing I can remember clearly from high school is that stoners love “Jack in the Crack.” It’s as if Jack in the Box was invented for them and by them, and I think any lean toward full on legalization could be a huge boost for these shares in the future. JACK seems reasonably priced at current levels with a 12X forward earnings multiple and an EV/EBITDA of just 8.83X. If Sardir Biglari starts buying the name and shaking the tree, we would become especially bullish given his long term track record of making money for his shareholders. We liked what he did with Steak and Shake (the previous insular management didn’t care for their shareholders one bit) and will be looking to make the same type of moves in the future with our funds group. Jack is very cheap on a price to operating cash flow basis, and if stoners don’t have to fund massive wars and murders in Northern Mexico we feel they will have more money left in their pockets to spend at plaes like Jack in the Box. One thing is certain, we live in a full blown Nanny State so the bill will almost certainly not pass the House. Jack looks to be a good long term investment either way to us, but we would be more bullish on the U.S. stock market in general if weed was made legal.
HOG — Harley Davidson is not a cheap stock or a particularly profitable business right now, but the company does see some incremental benefits from higher gas prices and would stand to gain market share if pot were legalized and more discretionary income was left in the hands of pot smoking Americans. In addition to greater discretionary income, jails and prisons would be freed up of low level stoners and these pot heads would likely hit the road on their new Harleys at some point in the future — a “win win” for the bankrupt states and for the banana republic Feds who have to print more money to fund their profligate spending.
PFE — Visine would take a hit if marijuana was legalized as there would really be no reason to hide those blood shot eyes from authority figures. Additionally, the prescription drug market in general would likely lose a good deal of revenue as Marijuana has several medicinal qualities that could likely compete with the legal drugs handed out by doctors and psychiatrists on a daily basis. Okay, just one more reason that America, home of the free land of the brave, will never let pot be legal during my lifetime — the real drug kinpins in this country get FDA approval before selling their dope. Pfizer seems reasonable at current levels from a free cash flow perspective and even if pot legalization passes, I think the stock could reward investors over time. That said, pot could seriously compete with major pharmaceutical companies so watch these developments closely.
CXW — One stock to sell if pot is made legal is Corrections Corporation of America. There is no other offense which lines the pockets of private prison companies more than weed possession – marijuana crimes make up something like 40% of all inmates in prisons across the country. Therefore, if pot were made legal (which it won’t be) look to go short on CXW and GEO.
So there you have it, my trading ideas for the passage of Paul-Frank, which should happen but obviously won’t happen — we are no longer a Democracy as much as a Plutocracy and too much money is made keeping it illegal for change to actually occur in the United States. So, until then, try not to trade under the influence.