As cannabis and cryptocurrencies have seen mainstream profile increases alongside one another, both industries have earned their fair share of supporters and critics. One Wall Street expert, however, has his mind set on one.
Jason Karp, founder and portfolio manager of Tourbillon Capital Partners said on the Opportunities in Public and Private Markets podcast on May 8 that he believes investing in cannabis is a more important sector to take into consideration over cryptos.
“I think it is almost insane if you are an investor of any kind–public or private–to not have a strong opinion and not have basic knowledge on what’s going on with cannabis,” Karp said. “I would go so far as to say I think it’s far more important to be knowledgeable on this than it is to be on crypto.”
Despite being initially against the drug, Karp experimented with it by attempting to treat his insomnia and did research based on a friend’s request. After that, he was converted to the industry.
“I realized that I was going to spend a lot more time on the research from an investment perspective of this because this is a $50 billion industry today, [where] only $6 to $8 billion is legal,” Karp said. “My belief is the dominos are falling now to progressively increase the legalization timeline.”
Karp’s firm describes itself as an alternative asset management firm, employing low net exposure and “fundamentally driven long/short equity strategy.”
The Wall Street expert didn’t detail on the podcast specific stocks or companies he recommends but did mention he would not invest in the Canadian billion dollar valuated cannabis companies.
Karp favors cannabis over crypto due to cash flow
In terms of cryptocurrencies, Karp explained he views the crypto business as employing the “greater fool theory,” meaning holding assets under the belief there will always be someone willing to pay a higher price for them.
“Betting on a cryptocurrency is betting that someone is going to pay you more for the same thing that you bought without any cash flow generation,” Karp said. “Whereas with [cannabis] if your cash flows grow, you could be wrong on whether people want to buy it from you or not but you still win.”
During the show, host Patrick O’Shaughnessy, CEO of O’Shaughnessy Asset Management, said whenever he meets with groups of investors in Canada, he gets more questions about the cannabis space than crypto–mostly due to the encouragement the industry has seen from the legalization process.
“That’s a foreign concept here in the US still, because of the legalization problem but what an interesting area of the market,” O’Shaughnessy said.
The Canadian federal government is set to legalize the drug for recreational consumption later this year after the actual bill obtains approval from the Senate. While the US is moving towards legalization with states individually voting on this decision, despite the drug remaining illegal federally under the Controlled Substances Act (CSA). However, this year has seen an increase in decriminalization bills from US senators.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.