Has this ever happened to you? You think of what you would describe as a clever term or phrase only to take to the internet and find out you were beat to the punch (and by more than a day or two). Recently, I was looking through a long list of marijuana related stocks and it soon became clear that there were just a couple of established businesses scattered among acres of unproven, speculative companies that were more akin to a lottery ticket. Light bulb! I began to wonder which of these will be among the first to become a “green chip” stock. Google results sadly returned the fact that “green chip” was used here and there for environmentally friendly stocks when they surged in popularity a decade ago. But given how nearly every corporation claims to be in the business of sustaining our environment in some way or the other, I would argue the green chip term should be reserved for those that ultimately gain establishment status as among the Cannabis stocks. Plus, I think it’s more amusing to apply to Mary Jane stocks anyhow – so move over First Solar.
The term blue chip stock has some latitude in its meaning, but generally refers to large, financially sound companies that pay steady dividends. With 19 states having legalized medical use and another 8 for legal recreational use, investor attention has been on the rise (at least anecdotally in my case). Many are eager to strike green gold by identifying one of these future green chips and investing in them now. I can’t call this crazy thinking at all since it’s only a matter of time for the great plains and southern states to catch up to the rest of the country.
Before a couple more thoughts on the investment aspect, I am curious about how the industry will fit within the notion of “socially responsible investing” or SRI. Maybe it’s just in these southern and plains states that are dragging their feet on cannabis liberalization, but there will be undoubtedly investors who would prefer not to profit from marijuana. SRI has been one of the most difficult aspects to investing I’ve encountered. Even with geographically clustered clients, you don’t always find ubiquitous ideals or for how those ideals should be reflected in their investments. Furthermore, even if there were ubiquity, a fiduciary’s responsibility is with all clients’ money so how can one let the ideal of client A, B & C impact D’s portfolio?
To make it even harder (for me anyhow), it’s difficult enough finding the commonality within an issue, let alone having it boiled down to the exact common factors to be considered for an SRI portfolio. Here’s an offbeat example that hopefully highlights the difficulty.
Company A: Peddles annuities onto unsuspecting school teachers, in turn smothering them unknowingly with 3-4% vehicles. Not stopping there, they then strand them to make their own investment selections.
Company B: Manufactures plant based therapies to aid those with cancer from their pain and chemo nausea. That plant just happens to be associated with social taboo.
One is a financial cancer and the other one is fighting real cancer. One recently had it easier to do business in the US and the other is still battled by half the country. Clearly some personal bias shines through this slant – but its particular striking to me because I could find company A in just about any investor portfolio, even if they have a “socially responsible” slant. Rarely, if ever, would you financial stocks in an SRI screen yet I would suspect you would find some resistance somewhere to benefiting from cannabis.
SRI is clearly on the rise but is well beyond my scope and I have more questions than answers. I do fully understand and respect those that wish to have their dollars invested in a way that aligns with their values. It’s simply not in my personal jurisdiction – other than one last suggestion. Academic research has shown that SRI can lead to positive results, but in two ways. The first: Companies that “do good” tend to “do well”. The second: companies shunned as taboo also tends to do well (just take a quick look at cigarette stocks). That goes right along with sage advice from one of my investing idols, Howard Marks, to “concentrate on the unloved, less-followed and therefore less-efficient sectors”. If, for some reason, investors drag their feet to get on board – marijuana very well could be an area worthy of more focus. I’m not saying this is the case right now but is certainly a possibility going forward.
Assuming the socially responsible bridge has been crossed, marijuana investments on the other side of that bridge range across many industries such as real estate, growing technologies, farms and of course health care. Health care seems like the obvious path for the first green chip, but we shall see. Please make special note that none of this is a recommendation to put money in that area. FEG’s specialty centers on risk management in the pursuit of balancing risk, return and taxes. That isn’t conducive to putting client dollars towards unproven, speculative plays. But, I would certainly encourage you to not dismiss it as the area isn’t one that should be written off either. It does seem to me at least that there is a rather large disconnect between the fact that we are more than halfway home towards nationwide legality but still in the very early stages of investor interest. Those two will reconcile over time and some will be rewarded with healthy profits on their early investment. If you do somehow find motivation to go fishing for green chips yourself – do use caution and do not buy a stock just because it is in a certain business. A good company does not always make a good stock. But best of luck for turning your greenbacks into green chips
