By Kenya Confidential Investments Editor, Nairobi – December 26, 2017
An innovative way of establishing diversification, both geographically and between a large basket of businesses, has come to the sector
In 1744, a man whose name would echo through modern history had his humble beginnings. Mayer Amschel Rothschild was born in the Frankfurt ghetto to a money changer who worked for the Prince of Hesse, a region of modern day Germany.
However, unlike his father, by the time Mayer died, he had moved his family’s fortunes far beyond the borders of one small region, and the limitations and whims of one patron.
Today, the name is synonymous with the vast wealth the family accrued, along with a slew of conspiracy theories.
But what we should focus on is what made Mayer Rothschild the “founding father of international finance,” and number seven on the Forbes magazine list of “The Twenty Most Influential Businessmen of All Time” in 2005.
Why? Because you can do something very similar to what he did to create an immensely lucrative and secure source of profits in a time of great uncertainty.
And the way to do it will involve the last place many would think a lesson from an 18th century financier would apply — the booming marijuana sector.
Diversification is Key
Germany, and virtually all of Europe for that matter, was a chaotic and violent place during the lives of Mayer and his father. A very extensive and convoluted system of intermarriage barely kept sovereigns in check in good times, and regional strife was the norm.
The French Revolution was right around the corner. Only several years later, the Napoleonic Wars would rage for 22 years — with two short breaks — across the entire continent. The Holy Roman Empire was in its last days, finally dissolving in 1806.
Yet through all of this, Mayer Rothschild and his five sons didn’t just survive as second-class citizens. They thrived. The Rothschilds were Jewish at a time when that was a very risky thing to be. Many so-called “court Jews” of the time had financed, if not outright managed, the activities of Christian nobility.
When times weren’t good, they saw all of that destroyed. While their predecessors often lost their wealth through violence or expropriation, the new kind of international bank created by the Rothschilds inoculated them from the greed and whims of others.
Changes made by the Rothschilds allowed them to insulate their property. As Paul Johnson noted in The History of the Jews, “Henceforth their real wealth was beyond the reach of the mob, almost beyond the reach of greedy monarchs.”
The key innovation Mayer established was a level of interconnection and diversification that was unheard of at the time. He sent his five sons to five cities. Amschel to Frankfurt, Salomon to Vienna, Nathan to London, Calmann to Naples, and Jakob to Paris.
And because of it, even through all the wars and upheaval of the next two centuries, the diversification allowed any one branch of the family business to be propped up by the others.
Do The Same Today
Modern banks have long since eclipsed the Rothschilds in this kind of business strategy, but the nascent marijuana sector is presenting a new opportunity that is quite similar to what the Rothschilds faced.
The market is fragmented, chaotic, and while not violent in the medieval sense, certainly difficult. Individual companies and their investors are subjected to the vagaries of local, state, and federal governments.
Taxation and laws can be changed at a whim, with the specter of a federal intervention always looming and United States government Food and Drugs Agency (FDA) places Cannabis at top classification as a dangerous drug.
Financing is virtually nonexistent. Banks in the U.S.A. won’t touch marijuana companies in states where it is legal. Cash has to be shipped around in armoured cars for a large transaction of any kind.
Businesses have to depend on a handful of investors or patrons to get off the ground.
Anyone can grow a plant. What these small companies need is secure financing from a secure business. And that is how, today, you can do the same thing the Rothschilds did in their time.
An innovative way of establishing diversification, both geographically and between a large basket of businesses, has come to the sector.
And as a result, investors are now able to remove a lot of the risks that confront an early stake in the booming sector. They can invest in a parent business that has spread its wealth around, and inoculated itself against regulatory risks and being tied to a single small company’s fate.
That is how Cannabis is turning to gold and could very soon outrun the precious mineral in terms of quick stock returns.
To find out exactly how this is being done, check out research from the Outsider Club’s Jimmy Mengel.