Insider Trading for Outsiders

Written by Jimmy Mengel
Posted February 2, 2018 at 10:06AM

Insider trading is the worst.

It cripples regular investors like you and me. It makes rich insiders even richer than they already are. It undermines the very nature of investing.

It is stealing, plain and simple. I’ve run into plenty of these characters in my day-to-day work, when I’m researching stocks and deciding which ones are worthy companies and which ones are simply a dumping ground for rich insiders waiting for the next fool to pad their own pockets.

But it is one thing to scam people on some penny stock that you have inside information on as a retail investor. Maybe your neighbor heard about some hot tip and passed a stock along. Perhaps your uncle heard rumors of some big acquisition from a colleague in the company he works for. I even had a dentist try to sell me on a medical company stock based on one of his patient's tips…

These are all rather benign — yet insidious — ways to make a quick buck.

It is an entirely different issue when you are a trusted government official playing stocks based on legislation that you yourself are paid to create.

That is exactly what happened with Trump’s top health official. She invested in companies that she was actively seeking to regulate and was rightly fired this week.

The biggest mistake she made? Picking the wrong damn stock to cheat on…

The director of the Centers for Disease Control and Prevention (CDC) was just busted trading big-tobacco stocks while she was in charge of the CDC’s anti-smoking efforts. Brenda Fitzgerald bought tobacco stocks one month into her new role of, well, trying to get kids to stop smoking!

As if that weren’t hypocritical and awful enough, her stocks didn’t even do that well. If you are going to be a liar and a cheat, at least have the common sense to make a ton of money. She didn’t.

She was investing in Japan Tobacco (OTC: JAPAY), a producer of tobacco for international markets. Here’s how it did last year:

japan tobacco
That’s a whopping 2.46% in a year. A thrilling return, and well worth risking your job and credibility over.

Now, let’s compare that to another industry — one that doesn’t kill millions of people, and doesn’t have an obvious mandate from the agency that Fitzgerald heads: marijuana.

Here’s the chart for Canopy Growth Corp. (WEED.TO), the current leader in the legal marijuana space.

canopy 1 year

That's 177% in one year. Take it back three years – when I recommended it to my readers – and it is a 1400% return.

Which would you rather invest in?

The fact is that Big Tobacco — as hideous as it is — isn’t going away. It will likely seek to buy up these smaller marijuana companies to replace its lagging cigarette sales.

We’ve already seen the writing on the wall…

Alcohol giant Constellation Brands — which sells Corona beer, Svedka vodka, and other brands — paid about $191 million for a 9.9% stake in Canopy Growth. That is a massive vote of confidence in an industry that has been craving it.

Constellation said it has no plans to sell cannabis in the U.S. or other markets until it's legal "at all government levels." For now, it's more a matter of identifying markets with growth potential, said Chief Executive Officer Rob Sands.

This is the first time a major alcohol manufacturer has invested in cannabis. Big Tobacco and Big Pharma will be the next industries to start tossing money at these smaller companies.

The key is to find the companies that will be prime takeover targets.

Lucky for you, I've already identified one.

Canadian companies are positioning themselves to feed the intense demand that will hit once the country goes full-recreational later this year. There have been reports that the ferocious demand will far exceed the current supply.

So the big guns are scooping up smaller operations in an effort to stock their cabinets.

I think the next prime takeover target will be a small Canadian cannabis company that has a proprietary oils business and several patents it is working on for sustained-release medicinal cannabis. It is also cheap compared to some other competitors, which makes it an attractive buyout target.

If you want to play the market justly, intelligently, and lucratively, please give the company a look.

Best of all, it's completely legal and won't cost you your job. It may even allow you to quit the one you have now.

Godspeed,
jimmy-mengel-signature-fixed

Jimmy Mengel

follow basic @mengeled on Twitter

Jimmy is a managing editor for Outsider Club and the investment director of the personal finance advisory, The Crow's Nest, and cannabis stocks advisory, The Marijuana Manifesto. For more on Jimmy, check out his editor's page.

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