A Pick & Shovel trade for the booming pot

Marijuana, also nicknamed as Pot, is still illegal at the federal level in the US but this is going to change and becomes a very hot commodity in the years ahead. Don’t argue with me whether marijuana should be legalized or not as this is a hugely controversial area. Personally as a physician I think marijuana’s medical benefits cannot be denied and its medical use should be legalized. This is a trend that cannot be reversed. Canada has become the first country in the world that has legalized marijuana’s medical use nationwide and will become the first country to even fully legalize marijuana use including recreational use next year. Here in the US, more and more states have legalized marijuana medical use. At the moment over half of the states have already done so and it is just a matter of time that all the states and even at the federal level, its medical use will be legalized. This is an irreversible trend. Like it or not, a lot of money can be made in this megatrend if you stay with it. There are tons of marijuana companies but be careful where you put your money in as majority of them are junk stocks and you may be even trapped into some scandals. One legitimate cannabis stock that you can trust is GW Pharma (GWPH). This is a UK based pharma company that has developed some cannabis based products for medical use. It is not cheap but a good one to hold if it comes down to a more reasonable valuation. One idea to ride onto the pot trend is to look for picks and shovels stocks that will provide necessary tools for cannabis companies without directly involved in the business itself. It is a much safer way to made money in an uncertain world. I have found such a company and you probably will never relate it to the marijuana business. It is my loved stock, Microsoft (MSFT).
 

Long time readers certainly know how much I love Microsoft and I think this one alone can make me really rich over time. It has over 15 blockbuster businesses (over $1 billion sales each) and it is on track to grow even faster under the current CEO. It has a great track record of paying growing dividends that will continue with a huge pile of cash in hand. I have mathematically demonstrated how to easily make yourself a millionaire with very little risk by simply sticking to Microsoft for long term. And I’m certainly doing that. Actually Microsoft is the single stock I put most of my money for long term holding with dividend reinvestment. Now back to its new venture in the pot business, which may very likely become another huge success given the non-stoppable trend. Last year, it has announced to team up with a company called Kind to develop a tracking software for marijuana companies. It is part of Microsoft’s cloud business that is booming fiercely. Regardless how the marijuana use is evolving, it will likely become a highly regulated commodity like tobacco or alcohol. As the CEO of Kind said, "Every heavily regulated industry has track-and-trace. Cigarettes are tracked, alcohol is tracked, gaming — slot machines — are tracked,"  "The backbone of every one of those industries is compliance." I think this is very smart and courageous move for Microsoft as till now, virtually no any other big corporations have dared to decisively move into the marijuana business. In a few years from now, probably many will make the move but Microsoft will have already firmly established its leading role by then. I like Microsoft more and more. Although I hope its stock would never go up but just stay low with increasing dividends to accelerate my wealth growth, it is inevitable that MSFT will go up substantially from the current level in the years ahead. Regardless, I will stay with it, waiting for the time when tens to hundreds of thousands dollars from its dividends will come in every year during my retirement. This is a Buffett’s way to become rich that you can count on it with Microsoft!

Just a quick word of the reaction to Microsoft earning report this week. It has again been a great earning report but the stock price didn't move and even a bit down. Why so? Well, MSFT has gone up almost straight line for 2 years from its $40s without much correction. The expectation is simply too high and it needs exceptionally good earnings to further excite the short-term traders. For long term actually a bit cooling is healthy for MSFT and I think some further weakness is likely in the near future.