In the 1840s and ’50s, people from all over the US flooded into California, hoping to find gold and strike it rich. A few did, but most were severely disappointed.
Meanwhile, a German immigrant living in New York saw a different sort of Gold Rush opportunity.
Instead of searching for gold, he decided to sell basic goods to the gold miners. It was a much safer way to build wealth.
Eventually, the immigrant’s most profitable product was a new style of sturdy pants that he sold to the miners. They were a huge success and made him incredibly rich.
It was the classic “picks and shovels” play.
As you may have guessed, this immigrant’s name was Levi Strauss. He was so successful that you may even be wearing his product right now.
Today, there’s another gold rush happening in California. But this time, it’s a “green rush” into the legal cannabis market.
And, once again, there’s a fortune to be made selling picks and shovels to the prospectors. Right now, it’s the best and safest way for regular investors to profit.
As Big as Beer and Chocolate
On January 1, it finally became legal for adults over the age of 21 to buy recreational marijuana in California. Buying pot there is now as easy as buying beer.
This is a big reason why the US legal marijuana market is expected to grow from $6.5 billion to $50 billion by 2026. That would make it the same size as the American craft beer and chocolate markets combined.
Today, investing in the legal cannabis industry is like investing in the beer industry at the end of Prohibition. Fortunes are going to be made.
To date, 29 states (plus Washington, DC) have already legalized medical marijuana. And eight states (plus DC) have approved recreational use.
However, marijuana is still illegal under US federal law.
That means any company that “touches the plant” cannot open a bank account. For the time being, they have to run cash-only businesses. (No US bank wants to run afoul of the US federal government.)
And, as you’d expect, any company without a bank account would have a hard time getting its stock publicly listed. That limits the options for regular US investors.
None of this will change until the US federal government legalizes marijuana. But that doesn’t mean you can’t make huge profits off this trend right now.
This is where “picks and shovels” pot stocks come in…
The idea is to own companies that supply essential products and services to the cannabis industry. That includes hydroponic growing equipment, cannabis accessories, and so forth.
Since picks and shovels companies don’t touch the plant, they are 100% legal under US federal law.
The Best Way to Grow Marijuana
The highest-grade cannabis is grown indoors using hydroponics.
Hydroponics is a method of growing plants without soil. Water-soluble fertilizer is the plants’ only source of nutrients. It’s a complicated process, but it allows the grower to control different variables more easily.
The diagram below shows how it works.
Picks and shovels pot companies are set to explode in line with the US legal cannabis industry. But you shouldn’t put your money into just any company…
Most US Pot Stocks Are Junk
There are already over 200 publicly traded companies in the marijuana space. About 70 of them trade in Canada. The rest trade in the US.
The vast majority of US pot-related stocks are “penny stocks.” They trade over the counter.
Most of them are junk. Some of them are outright frauds.
Take Medbox, a marijuana vending machine company. Five years ago, it wanted to put pot dispensers on every corner.
Investors loved the story. So, they piled into the stock.
In the fall of 2012, over the course of about a month, Medbox’s share price surged an incredible 7,455%.
It was the hottest marijuana stock on the planet. But the company’s founder used illegal stock sales to inflate revenues.
When investors found out, the stock went down in flames. Its share prices plunged 90% in one day… before ultimately hitting zero.
I’m mentioning this story because, for every marijuana goldmine, there’s more than a few marijuana landmines.
So if you want make huge profits off this boom, you have to do your due diligence… and watch out for scams.
Plus, remember that marijuana stocks can be volatile. So don’t bet more money than you can afford to lose.
This will help stack the odds in your favor.