Why Jeffrey Gundlach May Be Wrong About Cannabis

In an interview with Yahoo Finance, Jeffrey Gundlach was asked about his views on the cannabis industry, and whether he thought cannabis was a “mania.” He responded, “The cannabis thing does seem kind of like a mania,” likened cannabis to corn, and asked, “How come there isn’t a corn mania?” Let’s analyze these two statements.

By likening cannabis to corn, Gundlach was essentially stating that cannabis is a commodity. He may not be wrong in that assessment because, in its most basic form, cannabis can be grown by anyone. However, there are more differences between corn and cannabis than similarities.

Because cannabis has psychoactive properties and is considered a controlled substance in most parts of the world, not just anyone can plant it. Even where it is legal, growers need regulatory approval before they can begin planting, which can put higher supply constraints on cannabis than corn.

The cannabis industry is facing supply shortages, giving companies (HMMJ) such as Canopy Growth (WEED), Aurora Cannabis (ACB), Aphria (APHA), and Cronos Group (CRON) an incentive to expand.