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The Investing Parallels of Alcohol and Marijuana

Imagine for a moment that you could go back in time to 1932, the year before the 21st Amendment to the U.S. Constitution was ratified, repealing Prohibition (and the 18th Amendment). What might you do with the knowledge that the production, transport and sale of alcoholic beverages was about to be legalized? What sort of investment opportunities might you find? How would you deploy your capital?

Fast-forward to 2017. Might we be in a similar, if not exactly parallel, situation regarding a different investment opportunity?

It’s a question I have been thinking about since the announcement that Canada will consider legislation to legalize marijuana for recreational use. According to Bloomberg News:

Canada is advancing plans to become the first Group of Seven nation to legalize recreational marijuana nationally, but Prime Minister Justin Trudeau is keeping key details hazy and allowing arrests to continue while parliament debates his plan.

The proposal would make Canada only the second country in the world to legalize the retail sale and use of pot after Uruguay (medical marijuana is already legal in about 20 countries).

This is potentially a big deal: Legal marijuana was a $3.4 billion business in 2015 in the U.S.; Arc View Market Research pegged the legal marijuana market in 2016 at $7.1 billion. That is expected to triple during the next three years to $22 billion.

It’s not too surprising that with that kind of growth, marijuana is attracting a lot of attention and potential investment dollars.

In an...