Marijuana Will Be Legal in Canada in 5 Days: What Investors Need to Know

All eyes are on Canada -- and the companies that stand to benefit -- as it prepares to legalize recreational marijuana ------------------------------------------------------------------------------------------------------------------------------------------------------ [View this email in your browser]( All eyes are on Canada — and the companies that stand to benefit — as it prepares to legalize recreational marijuana, and we're cutting through the hype to offer some important context for anyone considering investing in cannabis. Also, check out three smart moves to make in an expensive stock market and look ahead to Netflix's earnings report. – Katie Carrera, Stock Up Editor 6 Things You Should Know About the Canadian Marijuana Market --------------------------------------------------------------- On Wednesday, Oct. 17, Canada will become the first industrialized country to legalize recreational marijuana. It's an industry that has very little legal precedence on an adult-use basis worldwide and estimates of what types of additional sales to expect vary wildly. (Remember, Canada is already selling medical cannabis domestically and abroad.) [Here are some things to be aware of on the eve of legalization.]( - Emotions and volatility will remain high. Volatility is likely to remain high for weeks or even months after legalization. Based on a belief that demand will be high, investors have piled into marijuana stocks hoping that profits will soar for the next few years. That also means there are stocks investors should avoid, which requires examining the business fundamentals of a company not simply getting swept up in the excitement of legalization. - Every province has different rules and regulations. The rules aren't one size fits all, as provinces are free to establish their own regulations, which can include setting the age of legal purchase at 18 or 19, whether to allow home grow as an option, and whether private retailers can operate dispensaries. An intriguing beneficiary of Canadian legalization is software-as-a-service platform Shopify ([NYSE:SHOP]( which partnered with the Ontario Liquor Control Board to handle its brick-and-mortar, online, and mobile sales within the province. The company is also working with many large growers to assist with online sales. - Exports will comprise more than half of all sales. Don't overlook the possibility that a large chunk of Canadian production may find a way to the roughly 30 countries that have legalized medical marijuana. Estimates vary, but Health Canada believes domestic demand will be around 1 million kilograms per year. By 2020, growers could be producing 3 million kilograms or more annually and they're hoping overseas markets will gobble up that supply. - High-margin products are on the back burner. Not all forms of consumption will be legal on Oct. 17 — only dried cannabis and cannabis oils. Alternatives such as vapes, infused beverages, concentrates, and edibles won't be. Although Canadian Parliament is expected to discuss those options in 2019, there is no timetable for when that might happen. Keep that in mind as companies build partnerships for products that aren't yet legal. - Initial shortages appear likely but that may give way to oversupply. Many of the biggest growers are still in the process of ramping up their production, which could make meeting the initial consumer demand wave a challenge. Growers have done a relatively good job of sticking to their budgets and timelines, but when this production comes on line it could far exceed actual demand. - Profits could be elusive in the early going. Marijuana stocks aren't expected to be substantially profitable right out of the gate. There's plenty of capacity expansion, brand building, marketing, product innovation, and building out international infrastructure that companies need to do. Take Canopy Growth Corp. ([NYSE:CGC]( for example. It's arguably the most well-rounded marijuana stock, large production expectations, a recognized brand name product, and a massive alcoholic-beverage maker as a partner the company isn't expected to be profitable in its current fiscal year. --------------------------------------------------------------- Long Read: Our Guide to Canadian Marijuana Stocks If you're looking for all the details you could need to decide whether to invest in the Canadian marijuana market — or simply learn about skyrocketing industry — [this article has you covered](. To get a full picture, start with an overview of the Canadian market, the rules and limitations that are in place, the risks and threats facing the marijuana industry, and the future projections for its growth. There are also a variety of ways to invest in these stocks, and plenty of major pure-play companies to assess. --------------------------------------------------------------- FEATURED PODCAST --------------------------------------------------------------- [Motley Fool Answers]( Disaster-Proof Your Finances Robert Brokamp, personal finance expert at The Motley Fool, explains how to prevent financial disasters in your life and what you can do to minimize the damage when the unexpected happens. [Subscribe on iTunes]( --------------------------------------------------------------- 3 Defensive Moves to Make in an Expensive Stock Market By several metrics, the stock market is as expensive is as it has ever been. This doesn't necessarily mean that the next recession or stock market crash is right around the corner. It will happen eventually, but the market could still have a few more strong years before it does. [All the more reason it can be smart to start thinking a little defensively]( while making sure you aren't putting yourself in a position to miss out if the bull market continues. Here's a playbook: - Focus on defensive stocks: What does that mean? Businesses that should do just fine no matter what the economy does. Walmart ([NYSE:WMT]( immediately comes to mind, as during booms its customers have more to spend but during bad times the retailer gets an influx of customers trying to scale back. High-dividend stocks such as telecoms, utilities and REITs are also good examples. They're evergreen businesses and stocks with reliable, above-average dividend yields tend to outperform their nondividend counterparts in tough times. - Average in to new positions: [Dollar-cost averaging]( makes particularly good sense if you think the stocks you're interested in buying are a little overheated. The basic idea is that instead of investing all at once, you invest a set dollar amount at a specific time interval and build a position over time. For example, if you want to invest $10,000 in a company you could invest $2,500 at the end of each quarter over the course of the next year. Without getting deep into the math, this strategy works to give you a favorable average entry price. - Keep some cash on the sidelines: If the market looks expensive and you're having trouble finding attractive investment opportunities, it isn't a bad idea to start accumulating a little more cash than usual in your portfolio. If a stock market crash or correction occurs, you'll want some money available to take advantage of new, lower stock prices. It's generally wise to keep a significant portion of your portfolio invested for the long term, however, because there's no way to accurately time the market. --------------------------------------------------------------- Can Netflix Maintain Its International Momentum? Netflix's ([NASDAQ:NFLX]( third-quarter earnings report is scheduled to be released on Tuesday, Oct. 16, and [investors would be wise to have an eye on the progress of Netflix's international operations](. After all, international streaming revenue represented nearly half of total revenue in the company's most recent quarter. Membership growth surged from 104 million in the second quarter of 2017 to 130 million a year later in the second quarter of 2018. Of those approximately 26 million new members, 21 million of them came in international markets. Netflix expects 4.4 million new international members in the third quarter, which would bring the total to 57% of the company's projected 135.1 million total members. It's difficult to overstate how critical Netflix's international business is to the company's growth story. At $1.92 billion in the second quarter, international streaming revenue outpaced its U.S. counterpart. For the third quarter, management predicted international streaming revenue of $1.97 billion — up a whopping 48% from the same period a year ago. Despite the increasing international membership counts and revenue numbers, however, the segment still isn't contributing much to Netflix's bottom line. International contribution profit, which is revenue minus the cost of revenue and marketing expenses for that segment, was $298 million in the second quarter. (Compare that to a $740 million contribution profit for its U.S. streaming business.) --------------------------------------------------------------- Quick Reads - [How to keep your cool in a falling market:]( This week's market plunge might cause some to panic. But we're here to remind you that investing in the stock market requires discipline to stay focused on your long-term strategy rather than getting caught up on short-term pain. - [Forget FANG. Meet MANA.]( Time for a new acronym and some market beaters that happen to be old-school tech icons. - [4 retirement rules:]( Aiming for a stress-free retirement? Here are some important things to keep in mind. --------------------------------------------------------------- TWEET OF THE WEEK --------------------------------------------------------------- [Tweet of the week: Too many companies believe people are interchangeable. Truly gifted people never are. Warren Bennis, Author]( [See all our Tweets]( Join the 1,300,000+ people who follow us! [Twitter]( [Facebook]( We work fervently, feverishly, and Foolishly to make sure all the facts and figures we publish in our emails are 100% accurate and up to date. Returns as of October 10, 2018. 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