Drugs, Coffee, and What's Cheap Now

Marijuana is not heroin... Hard truths about drug prohibition... Wanted: stoned voters... The decline of Starbucks... Overpriced expectations... Slam dunks are bad bets... The portfolio that's crushing the S&P 500... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] Marijuana is not heroin... Hard truths about drug prohibition... Wanted: stoned voters... The decline of Starbucks... Overpriced expectations... Slam dunks are bad bets... The portfolio that's crushing the S&P 500... --------------------------------------------------------------- Joe Biden is bringing weed to the party... President Biden's administration asked the Department of Health and Human Services ("HHS") and the attorney general to "expeditiously" review marijuana scheduling in October 2022. The review was done by August 2023, with the HHS concluding that marijuana has some medical benefits. Biden underscored his commitment to marijuana legalization when he said that "no one should be jailed for using or possessing marijuana" in his March State of the Union address. I (Dan Ferris) rarely agree with any politician about anything.... But the insanity of incarcerating people for possessing drugs is straight out of some dystopian political novel like 1984 or Atlas Shrugged. On Tuesday, the U.S. Drug Enforcement Administration ("DEA"), based on the HHS review, said it will effectively end the ban on cannabis by changing it from a Schedule I narcotic (like heroin or LSD) to a Schedule III drug, like Tylenol with codeine, ketamine, and testosterone. The DEA skipped right past Schedule II, which includes cocaine and fentanyl. Schedule I drugs are alleged to have "no currently accepted medical use and a high potential for abuse." Schedule III drugs are said to have "a moderate to low potential for physical and psychological dependence." (I can't imagine trusting the government to make those determinations but here we are.) The DEA's decision has a reasonable shot at making Biden more popular with at least some voters. A Pew Research poll showed that 88% of Americans think marijuana should be legal for both medical and recreational use. This is the biggest change in drug regulations since marijuana was outlawed by the Controlled Substances Act of 1970. It's a huge game-changer. For one thing, it might help to heal some of the awful social division that has infected this country... Most people don't realize the twisted roots of American drug policy... Like gun control, modern, aggressively enforced drug prohibition has its roots in blatant, government-supported racism. In a 2016 interview, former Nixon aide John Ehrlichman admitted: We knew we couldn't make it illegal to be either against the [Vietnam] war or black, but by getting the public to associate the hippies with marijuana and blacks with heroin, and then criminalizing both heavily, we could disrupt those communities... We could arrest their leaders, raid their homes, break up their meetings, and vilify them night after night on the evening news. Did we know we were lying about the drugs? Of course we did. The result was 100% predictable to all but the dullest knives in the drawer. U.S. drug prohibition has been an even bigger disaster than alcohol prohibition in the 1920s. U.S. prisons house more than 2 million people, by far the largest prison population on the planet, despite the U.S. population being a distant third behind India and China. A 2015 study reported more than half of U.S. federal prisoners were in for drug violations. Countless lives have been destroyed for purely political reasons. I understand the impulse to ban harmful substances, but drug prohibition can only make things worse. Without it, people use drugs. With it, people still use drugs and extremely violent gangs control illegal drug markets, murdering, kidnapping, and torturing whoever gets in their way – including lots of innocent bystanders. And, of course, jackbooted government thugs across the country get to have fun abusing the power that anti-drug laws give them. A war on drugs is just a war on people the government doesn't like – exactly as Ehrlichman described. So maybe the DEA's announcement will get the government off peoples' backs so the deep wounds it has inflicted through drug prohibition can begin to heal. Live and let live. But I don't want to give Biden more credit than he's due... Maybe he finally got marijuana off Schedule I because the 2024 presidential election is just six months away, and you'd have to be stoned to vote for any of the non-choices we're presented with every four years. It's not hard to imagine a group of friends wanting to take off work on Election Day, get high, and go vote. I can almost hear them singing the old Brewer & Shipley song on November 5... One toke over the line, sweet Jesus One toke over the line Sitting downtown in a little booth voting One toke over the line. Once it's no longer a Schedule I drug, marijuana will no longer be subject to a punitive tax on drug traffickers called 280E, which took the effective tax rate for most cannabis companies to 80% of gross revenue, according to Forbes. So instead of having most of their cash incinerated by the government, they can use it to create value for their customers, employees, and shareholders. The measure isn't official yet. First the Office of Management and Budget has to clear it, then it's subject to a 60-day public comment period. If all goes as planned, marijuana will officially become a Schedule III drug in late August, according to a friend who knows the industry well. Investors rejoiced over the news and pushed up cannabis stocks sharply. The AdvisorShares Pure U.S. Cannabis Fund (MSOS) shot up as much as 26% on Tuesday and has since settled back (its typical trading pattern). As I write this Digest, it's still trading in a higher range than before the announcement. With the 280E change making U.S. cannabis producers much more profitable, it would make sense for MSOS to remain in a higher range and to move higher as the government continues to get out of the industry's way. Good news for cannabis may come at the expense of many other folks' drug of choice... That's one way to interpret disappointing financial results from coffeehouse giant Starbucks (SBUX), at least... Maybe without the government demonizing marijuana, fewer people need Starbucks to fuel their addiction to caffeine laced with massive amounts of sugar. Starbucks stock fell nearly 16% on Wednesday after the company reported a 2% drop in quarterly revenue compared with the same period last year and a 15% drop in net income. It also cut its sales projections for the second time this year. Starbucks foot traffic was down 6% last quarter. There are probably many reasons for that. As the Kobeissi Letter commented yesterday in a Starbucks-focused thread on X (formerly Twitter): The number of reasons people have mentioned for the decline of Starbucks is wild. Everyone has a reason they don't go there anymore. If that's true, the implication is that customers aren't coming back due to a deep, systemic problem that has affected all the different reasons folks might have enjoyed visiting Starbucks. It suggests the company's core business and culture are somehow damaged. Among other issues, management reported that too many customers abandoned orders they placed on the company's mobile app due to long wait times and lack of product availability. Personally, I don't go to Starbucks anymore because I've reduced my sugar intake and it's too easy to order a shot of some syrupy flavoring. I'm not saying that's why foot traffic was down last quarter, but maybe some of those folks who didn't go back to Starbucks last quarter are taking appetite-curbing drugs for diabetes or weight loss. By now, most folks have heard that patients taking popular diabetes drugs like Ozempic and Mounjaro are also reporting that they're losing weight. So the drug companies have created weight-loss counterparts to their diabetes drugs (Wegovy and Zepbound, respectively). Eli Lilly (LLY) reported lackluster revenue growth last quarter but raised its 2024 revenue guidance to between $42.4 billion and $43.6 billion from a previous range of $40.4 billion to $41.6 billion, based on soaring sales of Zepbound and Mounjaro. Many folks have concluded that the new weight-loss drugs, once the currently limited supply meets the overwhelming demand, will have impacts ranging from the fuel efficiency of commercial aircraft to the profitability of restaurants. That doesn't mean I want to bet on weight-loss-drug companies right now... Eli Lilly and Novo Nordisk (NVO) – maker of Ozempic – have soared in the past five years due to high growth expectations for their obesity and weight-loss drugs. Lilly is up more than 560% since 2019 and Novo is up more than 440%. Lilly trades for around 134 times earnings... Novo for around 48. My friend and colleague Dave Lashmet recently appeared on the Stansberry Investor Hour and spoke at length about weight-loss drugs during [our March 25 episode](. He essentially said that the demand for these drugs is enormous and way ahead of the supply... but that the companies are making huge investments in new supply and sales will soar as they meet the demand. Dave knows what he's talking about. In his Stansberry Venture Technology newsletter, he has picked lots of huge winners over the years, based mostly on his ability to understand technologies and trends within technology industries. (This includes Novo Nordisk, which Dave recommended four years ago... Shares are up 278% since then.) He's my No. 1 go-to analyst to help me understand the complex technical situations you find in biotech, semiconductors, and other science-heavy industries. But businesses trading at enormous valuations for whatever reason are simply not my cup of tea. For that reason, I feel the same way about artificial intelligence as I do about weight-loss drugs. Nvidia (NVDA) – the most popular AI play – is up a little more than 1,700% over the past five years. It trades for around 70 times earnings. (Dave also got his subscribers in early on Nvidia... As Digest readers can see in the Hall of Fame at the bottom of each day's mailing, he eventually closed his Nvidia position after six years once shares were up 1,466%.) The market seems to believe Nvidia's sales and earnings will grow into its steep price tag. I can't be sure, but the history of bubbles suggests the odds are against such a bet working out well. Many market bubbles have featured enormously expensive stocks priced for massive growth that everybody agrees is 100% guaranteed to happen. The dot-com bubble is the most obvious example. Such expectations are rarely met, especially when they've been priced into the market for years now. The stories are great. The products are incredible. The world is changing, and these companies are front and center in some of the biggest changes making headlines today. I don't dispute any of that. I only dispute their attractiveness as investments once everyone already knows these stories. In past manias, stocks just like them all collapsed soon after everybody agreed they were the best no-brainer stocks in the world. Howard Marks might ask, 'Who doesn't know it's a slam dunk?'... Marks is an investor/author whose periodic memos are must-reads. When you come across one of these "no brainers" – the Nifty Fifty stocks in the 1960s and '70s... Cisco Systems (CSCO) in the late 1990s... and Novo, Lilly, and Nvidia today – think like Marks... Some other ways to think about these "slam dunk" stocks could be, "Who doesn't believe all this wonderful stuff? Who isn't expecting miracles from these businesses?" Judging by Lilly, Novo, and Nvidia's market performance and current valuations, the only reasonable answer is, "Nobody doesn't believe it, and everybody is expecting miracles." In other words, weight-loss drugs and AI chips simply aren't the contrarian, value-oriented propositions that I've specialized in finding over the past few decades. And maybe the weight-loss mania is already over. Novo Nordisk reported that Wegovy sales doubled last quarter... but the stock fell because results fell short of analysts' expectations. If doubling sales isn't enough to meet expectations... maybe expectations are a little too high. As for me, I'd rather just admit I missed the opportunity to buy drug and AI stocks a few years ago, move on, and find something that's not so exorbitantly priced. Lots of other stocks are also too expensive... but not all of them... We just interviewed macro investor Lyn Alden for an upcoming episode of the [Stansberry Investor Hour]( and she gave us a really great stock idea in the energy sector... one that's currently sporting a dividend yield north of 7%. Lyn explained how the company's balance sheet is in excellent shape and likely will remain so for several years to come. The mining industry also contains some good risk/reward opportunities. In The Ferris Report and last year at the annual Rule Symposium in Boca Raton, Florida, I've talked about how you could buy blue-chip, cash-gushing, well-managed, dividend-paying mining and energy companies right now at attractive valuations... and still expect to make 3, 5, or even 10 times your money on some of them through the full commodity cycle. And it's fairly obvious that we're in the early days of the cycle, so there's plenty of upside left. Last year at the event, I focused on copper. I noted that plenty of new discoveries were made every year up to about 2006, and many fewer new ones were made after that date, including four years with no new discoveries at all. As mining magnate Robert Friedland has noted, the world needs about eight new copper mines the size of Escondida in Chile (the world's largest copper mine) just to maintain a decent level of global economic growth. The problem is, those gigantic discoveries haven't been made and we're still working off of mines that have been producing for a century or more. They're running out of copper and there's not enough to replace it. Not only that, but the current price of copper isn't sufficient to entice new capital into building lots of new copper mines or looking for lots of big new copper deposits. So the price will have to rise, probably to at least double its current level. That'll make copper stocks soar. It won't happen in a month or a year, but it's inevitable given the global demand for copper. We saw the opportunity a little over a year ago in our Extreme Value newsletter and started our Ultimate Commodity Hypercycle Portfolio for Premier-level subscribers on February 28, 2023. It's seven of the best-of-the-best blue-chip mining and energy stocks. The average gain since we started the portfolio is 40.2% as of yesterday's close, compared with the S&P 500 Index's 27.6% gain during that period. At first, we were beating the S&P 500 by a few points. Now we're crushing it. Given the attractive valuations of the Commodity Hypercycle stocks and the egregiously expensive valuation of the S&P 500, the outperformance should continue for at least a couple of years, if not longer. By the time it's all over, a relatively low-risk return on the order of 300% to 500% would be fairly normal for these stocks. The idea of getting a multibagger return from the highest-quality big-cap companies in the sector is really exciting. Meanwhile, as I've pointed out several times in the Digest and in The Ferris Report, bear markets and extended sideways markets have historically been the normal outcome of mega-bubble valuations like we have right now in U.S. stocks. That's bad news for folks who bet big on the same stocks that outperformed over the past decade. But if you put your money into the ones that aren't already priced for perfection, the stock market still has several long-term opportunities priced for excellent returns over the next several years. --------------------------------------------------------------- Recommended Links: [Financial Chaos Is Coming on May 15]( May 15 could spark the stock market's biggest move of the year, according to the man who predicted the 2020 and 2022 crashes. You have just days to prepare for a historic turning point in the market that could double your money six different times – with the same strategy he used to find the top nine stocks of 2023. [See his outline (and No. 1 recommendation) here](. --------------------------------------------------------------- ['Gold Is Headed Above $3,000 per Ounce' (Here's How to Play It)]( With so many strange events happening across the economy (the longest bear market for bonds since the Civil War... unprecedented bank closures... and soaring prices), it's no wonder the richest investors are loading up on gold. But what you might not realize is there's a much better way to profit from rising gold prices – WITHOUT ever touching an ETF, mining stock, or even bullion. [Full details here](. --------------------------------------------------------------- New 52-week highs (as of 5/2/24): Alpha Architect 1-3 Month Box Fund (BOXX), Colgate-Palmolive (CL), Commvault Systems (CVLT), Cambria Emerging Shareholder Yield Fund (EYLD), iShares U.S. Aerospace & Defense Fund (ITA), Markel (MKL), Procter & Gamble (PG), Ryder System (R), RadNet (RDNT), and Sprouts Farmers Market (SFM). In today's mailbag, more of your feedback on the Federal Reserve, a subject of [yesterday's edition](... Keep your comments coming. Following this weekend's Masters Series, we'll pick up with the mailbag on Monday. As always, send your notes to feedback@stansberryresearch.com. "From Stansberry Digest [yesterday]: 'If any of this is true, or even close, then it is reasonable to consider that the central bank doesn't care as much about decimal points in inflation data as it used to... including the long-held 2% goal.' "Fairly mainstream analysis above... It's somewhat amusing, or disappointing, to see reactions to central bank commentary, whereby we actually pay attention to what they think about inflation. Please remember, this is paramount to saying the central bank doesn't care as much as they used to about how much they are stealing. Inflation is most definitely theft, is predictable or planned, and is a de facto tax. But inflation is most certainly not a mysterious creature that decides things for itself – it is caused by the central bank in concert with our government, and it is then suggested that they must valiantly fight the enemy they created... "The target inflation rate should be 0%. Focusing on 2% is merely a distraction from the reality that their 'money' should not lose value constantly as a perceived necessary evil." – Subscriber Brett G. Corey McLaughlin comment: Fair points. However, I at least haven't heard anyone in the mainstream saying the Fed "doesn't care as much" about its supposed 2% goal today. (I may have missed something, though. I limit my mainstream financial-news intake to the essentials and otherwise mostly look for helpful contrarian indicators in stories and opinions.) That said, we could have been clearer about the "as much... as it used to" part you quote. I meant that in reference to back in 2022 when Fed Chair Jerome Powell was talking in public so seriously about fighting inflation and at least acting like it by raising rates. Now, not so much... The balance-sheet trimming slowdown is actually a form of "easing" and encourages inflation. And, yes, inflation is always there... and I think a lot of people likely put too much stock in what the central bank is saying at any given moment when it comes to making investment decisions. As always, think of your goals and investing timeline(s) first and go from there... The Fed might not have anything to do with what you do – or it might. Consider its role in the ability to put some cash in 5%-plus yielding T-bills today... or if we're right about the central bank's ineptitude, other assets that might perform better in high(er) inflation times than not. "I'm cynical. With that as my foundation, here's how I see the Fed and the macroeconomic outlook: Powell and the Fed are synonymous; Powell just has the biggest megaphone, and he has successfully herded the cat governors into following his wishes. Powell wants in the worst way (key word is worst) to lower interest rates, thinking it will save his job if Biden gets reelected. If or when Powell concludes Trump will win, he will switch to raising rates to protect his legacy, thinking he has a positive legacy, and he wants to preserve that when he's retired. Powell's record on predicting the financial future is as bad as Biden's record of being right on foreign policy. It is going to take a Trump victory and a major shake-up at the Fed from the top down through several layers of deep state bureaucracy to get honest statistics, control of Federal spending, and meaningful reduction of the Federal debt." – Subscriber Wiley C. "Kelly F.'s post in the May 2 Digest regarding the negative consequences of interest rates being too low for too long was excellent. Capital should be allocated to worthwhile endeavors and ordinary people, of all ages, who generate capital through diligence and saving should be rewarded." – Subscriber Steve M. Good investing, Dan Ferris Eagle Point, Oregon May 3, 2024 --------------------------------------------------------------- Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open stock positions across all Stansberry Research portfolios Investment Buy Date Return Publication Analyst MSFT Microsoft 11/11/10 1,330.0% Retirement Millionaire Doc MSFT Microsoft 02/10/12 1,262.4% Stansberry's Investment Advisory Porter ADP Automatic Data Processing 10/09/08 879.8% Extreme Value Ferris WRB W.R. Berkley 03/16/12 720.1% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 610.3% Retirement Millionaire Doc HSY Hershey 12/07/07 480.8% Stansberry's Investment Advisory Porter AFG American Financial 10/12/12 446.5% Stansberry's Investment Advisory Porter TT Trane Technologies 04/12/18 406.8% Retirement Millionaire Doc TTD The Trade Desk 10/17/19 350.8% Stansberry Innovations Report Engel NVO Novo Nordisk 12/05/19 349.1% Stansberry's Investment Advisory Gula Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any Stansberry Research publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio. --------------------------------------------------------------- Top 10 Totals 5 Stansberry's Investment Advisory Porter/Gula 3 Retirement Millionaire Doc 1 Extreme Value Ferris 1 Stansberry Innovations Report Engel --------------------------------------------------------------- Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio Investment Buy Date Return Publication Analyst wstETH Wrapped Staked Ethereum 12/07/18 2,291.8% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 1,473.4% Crypto Capital Wade ONE/USD Harmony 12/16/19 1,212.4% Crypto Capital Wade MATIC/USD Polygon 02/25/21 814.5% Crypto Capital Wade AGI/USD Delysium AI 01/16/24 380.5% Crypto Capital Wade Please note: Securities appearing in the Top 5 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the Crypto Capital model portfolio. The buy date reflects when the recommendation was made, and the return shows its performance since that date. To learn if it's still a recommended buy today, you must be a subscriber and refer to the most recent portfolio. --------------------------------------------------------------- Stansberry Research Hall of Fame Top 10 all-time, highest-returning closed positions across all Stansberry portfolios Investment Symbol Duration Gain Publication Analyst Nvidia^* NVDA 5.96 years 1,466% Venture Tech. Lashmet Microsoft^ MSFT 12.74 years 1,185% Retirement Millionaire Doc Inovio Pharma.^ INO 1.01 years 1,139% Venture Tech. Lashmet Seabridge Gold^ SA 4.20 years 995% Sjug Conf. Sjuggerud Nvidia^* NVDA 4.12 years 777% Venture Tech. Lashmet Intellia Therapeutics NTLA 1.95 years 775% Amer. Moonshots Root Rite Aid 8.5% bond 4.97 years 773% True Income Williams PNC Warrants PNC-WS 6.16 years 706% True Wealth Systems Sjuggerud Maxar Technologies^ MAXR 1.90 years 691% Venture Tech. Lashmet Silvergate Capital SI 1.95 years 681% Amer. Moonshots Root ^ These gains occurred with a partial position in the respective stocks. * The two partial positions in Nvidia were part of a single recommendation. Editor Dave Lashmet closed the first leg of the position in November 2016 for a gain of about 108%. Then, he closed the second leg in July 2020 for a 777% return. And finally, in May 2022, he booked a 1,466% return on the final leg. Subscribers who followed his advice on Nvidia could've recorded a total weighted average gain of more than 600%. --------------------------------------------------------------- Stansberry Research Crypto Hall of Fame Top 5 highest-returning closed positions in the Crypto Capital model portfolio Investment Symbol Duration Gain Publication Analyst Band Protocol BAND/USD 0.31 years 1,169% Crypto Capital Wade Terra LUNA/USD 0.41 years 1,166% Crypto Capital Wade Polymesh POLYX/USD 3.84 years 1,157% Crypto Capital Wade Frontier FRONT/USD 0.09 years 979% Crypto Capital Wade Binance Coin BNB/USD 1.78 years 963% Crypto Capital Wade You have received this e-mail as part of your subscription to Stansberry Digest. If you no longer want to receive e-mails from Stansberry Digest [click here](. Published by Stansberry Research. You’re receiving this e-mail at {EMAIL}. Stansberry Research welcomes comments or suggestions at feedback@stansberryresearch.com. This address is for feedback only. 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