You’d think having the Senate vote in favour of the Cannabis Act would be good news for Canada’s large licensed producers.

But following the news that the Senate passed Bill C-45, the stocks of companies like Aphria, Aurora and Canopy dropped.

Perhaps investors realized that the Senate’s passing didn’t guarantee royal assent. That it must now go back to the House of Commons. 

And then, once the House is satisfied, it will send the Bill back to the Senate. And then the Senate will look it over and send it back to the House. 

It’s possible this rigmarole may last until the next election.

Regardless, we both know that LP valuations aren’t reflective of an underlying reality. We are in a stock market bubble and the LPs are a symptom of that.

And it’s not just Canada’s LPs and it’s not just a Canadian stock market bubble.

The graph below demonstrates this easily. The first is from the St. Louis Federal Reserve Bank, a branch of the nation’s central bank.

Base Money 1918-

You can see where things start to go off the rails in the 70s. This is when President Nixon cut all ties between the dollar and gold. 

Since then, the purchasing power of our currencies has eroded rapidly, especially since the US Dollar is the reserve currency of the world.

Dollars are supposed to be good as gold but without all the unique properties that make gold the default money of civilization. 

So there’s that.

The table below is more particular to cannabis. If the explosion of the US monetary base is the cause, then the effects, other than higher prices for food and land, are found in the stock market.

For, it’s not like the elderly and disabled on fixed incomes are the first in line for the bank’s newly printed money. 

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In what world does a 76800% gain exist? The world without an objective monetary standard like gold, silver, or hell, even a cryptocurrency would work at this point.

With some of these investments, you could have turned $10,000 into $7 million.

Where does this money come from? What actual wealth are you creating? In a free market, these arbitrage opportunities cancel themselves out as more investors pile in and smooth out the volatility.

But in the world of a stock-market casino, fuelled by cheap credit from the central banks, the normal rules for investing don’t apply.

What about the traditional modes of valuation? Balance sheets, revenues, debts, assets, equity, net income, profits, etc.

The production capacity of these companies in no way justifies billion-dollar valuations. 

And now Trump is throwing his possible support behind legalization.

While his Attorney General Jeff Sessions has been strongly anti-cannabis, Trump recently commented that he’ll probably support a bill that puts cannabis legislation and enforcement into the hands of individual states while forbidding federal enforcement of cannabis laws in states where its citizens have voted to legalize.

How will LP stocks react to this? The same way they react to everything. That is, gains or losses based on everything but the fundamentals.