“Vice City” Profits: How to Play the Market’s Most Addictive Stocks

Booze. Gambling. Tobacco.

Now we can add pot to the list…

The stock market’s arsenal of so-called “sin stocks” is growing every year. Gaming stocks have jumped to new highs this year thanks to the recovery in Macau. The big beer stocks are gobbling up microbreweries to keep up with America’s love affair with craft beer. And a brand-new marijuana market continues to expand as legalization sweeps the nation.

As you can imagine, this sin stock universe makes of a lot of clutter in the average investor’s portfolio. But that’s all about to change this week as the market unleashes a new exchange traded fund offering one-stop shopping for all your sin stock needs.

The AdvisorShares Vice ETF (NYSE:ACT) is going live this week. The catchy ticker symbol “ACT” tells you all you need to know about the stocks that make up the fund: Alcohol, Cannabis, and Tobacco.

To be clear, I’m not saying you should hop a plane to Vegas, load up at the bar (and the dispensary) and bet your life savings on black. In fact, I don’t care if you don’t smoke or drink, it’s impossible to deny the growth these vice investments can offer…

“We’re not making any kind of moral judgment or statement about what people want to consume with this focus; there’s a strong economic argument for looking at these sectors,” an AdvisorShares director said, via MarchWatch.

There’s an ETF for just about everything these days. And frankly, the Vice ETF is already starting to look redundant. Sure, it’s a catchy idea that stands to benefit from some strong trends — mainly the emergence of the legal weed business and America’s increasing appetite for alcohol over the past two decades.

But here’s the rub: Some of the more recognizable names in the sin-stock universe are already beginning to come together.

You don’t need an ETF when we’re already seeing consolidation in these industries. If you want to invest in booze and weed, there’s a stock for that…

Earlier this quarter, I told you how alcohol distributor Constellation Brands Inc. (NYSE:STZ) acquired a 10% stake in Canadian medical marijuana firm Canopy Growth Corp. (TSE:WEED). A major alcohol distributor buying a marijuana company would have been unfathomable just a few years ago. But with legalization gaining steam nationwide, this deal is shaping up to be one of many to come in the industry.

Not to be outdone, industry behemoth Molson Coors Brewing Co. (NYSE:TAP) announced it might soon throw its hat into the ring. Think about it — one of the most recognizable big brewers in the country will soon look to expand into the cannabis business.

Why?

For starters, statistics show consumers are beginning to view alcohol as a more harmful substance than marijuana. As pot use becomes more socially acceptable, the harmful health effects of booze are coming into focus. Attitudes of consumers — especially health-conscious young people — are potentially a threat to the alcohol industry. Plus, it’s impossible to ignore the growth boost a foray into the booze bus would offer. It’s a win-win.

But what about tobacco? Can the cigarette biz survive in the age of legal weed?

As it turns out, tobacco companies are thriving. Morgan Stanley notes the tobacco industry has sustained compound earnings growth of 7% a year for the past decade. That’s incredible when you factor in the steady decline in regular smokers over the same timeframe. Now, a booming e-cigarette culture could help continue the pattern of strong earnings growth, MarketWatch notes.

Whether it’s the political climate, the economy, or just good old fashioned stress, folks are turning to vice to make it through their week. And we don’t see this recession-proof trend ending anytime soon…

Sincerely,

Greg Guenthner
for The Daily Reckoning

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