Editor's note: Last year, the cannabis space experienced a number of key milestones...

But we believe that's just the start for this burgeoning industry.

Investors could make massive gains in the years ahead... if they know what they're doing. That's why we hired Thomas Carroll as the editor of our newest service, Cannabis Capitalist.

Before joining Stansberry Research, Thomas spent roughly two decades as a successful health care analyst. We believe his knowledge will be critical as we navigate this space.

In today's Masters Series – the conclusion of an exclusive two-part interview with Thomas – you'll learn why 2019 is a critical year for the industry... what the current political landscape looks like for cannabis... and how you can start investing in the space today...

The Coming Year Could Be Huge for 'Pot Stocks'

An interview with Thomas Carroll, editor, Cannabis Capitalist

Dean Jones Jr.: Why do you believe this year will lead to even bigger developments in the cannabis space?

Thomas Carroll: Let's consider some other really important regulatory developments that have happened...

Last June, the U.S. Food and Drug Administration ("FDA") – the federal agency that supervises and approves new drugs, among other tasks – approved a drug called Epidiolex. It is an effective treatment for two rare forms of epilepsy. And more pertinent to this discussion, Epidiolex is derived from the cannabis plant.

Wait a minute. Let's step back for a second... Cannabis use is still illegal at the federal level, right? But the FDA – a federal agency – just approved a cannabis-based drug. How can a federal agency approve a drug that's derived from a substance that is federally illegal?

These two things are in direct conflict – but this situation just happened! In my view, this FDA approval cracks open the door to better federal guidance in regard to cannabis usage.

It's a huge deal... It's essentially the FDA signaling to the Department of Justice that it is going to accept the role of regulating the cannabis industry. And it's time to reclassify cannabis so that it's no longer illegal on a federal level. We'll see how it plays out.

Plus, we just cleared another big regulatory hurdle with the 2018 "farm bill" – or the Agriculture Improvement Act...

It's a federal law that provides policy direction to America's agricultural industries. But most important, the 2018 farm bill fully legalized hemp at the federal level for the first time.

You know what hemp is, right? It's a form of cannabis! It's the cannabis sativa – or source of the CBD – that I was telling you about yesterday. This means that farmers can now grow and harvest hemp in the U.S. and not be at risk for federal prosecution.

Again, we're seeing real evidence at the federal level that restrictions are easing. It's only a matter of time before we see more developments. This year could be huge for the space.

Dean: On that note, what does the political landscape currently look like for cannabis?

Thomas: It has gotten better in recent months. As most folks know, the Trump presidency began with Jeff Sessions as attorney general. He is notoriously anti-cannabis.

But long story short, as most folks also know, Sessions is now gone. His successor, William Barr, is much more open to cannabis. During his confirmation hearings, Barr stated that federal resources would not be used to go after cannabis activities in states where it is legal.

Also, President Donald Trump has said he would support the "STATES Act." That's short for the "Strengthening the Tenth Amendment Through Entrusting States Act." It's a mouthful... But the main thing you need to know is that this legislation would essentially remove cannabis from the Controlled Substances Act of 1970 – again, in states where it's now legal.

That would eliminate the possibility of federal prosecution and free banks in those states to work with cannabis companies without retribution. It's a big deal. And with the 2020 election looming right around the corner, we could see movement on this front soon.

Dean: Maryland is one of the states that has legalized cannabis for medical use. And of course, it's also home to our Stansberry Research headquarters. On the way into the office each morning, I drive past a dispensary. For folks out there who live in states that haven't legalized cannabis in any form, can you explain what these dispensaries are like?

Thomas: Sure... If you don't know the term, a dispensary is essentially the retail store where cannabis products are sold. And to be honest, some dispensaries are nicer than others.

They can come in a lot of different shapes and sizes. Some dispensaries are merely what they're designed for – a retail store where you can buy what you need. Nothing more.

But others are like full, upscale wellness centers... They can include lines of non-cannabis health and wellness products. Some dispensaries have yoga classes. And they can also offer different other wellness-related activities – like massage therapy and acupuncture.

In Maryland, you have to get "checked in," so to speak, before you enter the space where the cannabis is located. That's because Maryland is only legal for medicinal cannabis. You have to see an approved physician to be cleared to buy cannabis legally. It's like getting a license to buy the product.

Dean: Even though it's still illegal federally, it's rather simple to invest in this space today. You don't need any special permissions. You can do it in a regular brokerage account.

Thomas: That's correct. Some of the larger cannabis companies trade on the New York Stock Exchange and the Nasdaq. Others are listed on the Canadian stock exchanges, but many of them are available for U.S. investors to purchase "over the counter."

I've traded a few cannabis stocks, and I've never had a problem using my regular Internet brokerage account and my laptop. With that said, you might have to take some extra steps if you trade with a large, old-school bank. Like with anything else, I'd recommend checking with your broker's customer service department if you run into any issues.

But at the end of the day, it is not illegal to buy a cannabis stock. It's just like any other stock. You buy it in your brokerage account and hope you can make money over time.

Dean: The early days of the industry seemed to include a great deal of fraud. And even today, I'm sure some of the cannabis-related stocks you can buy could steer investors in the wrong direction. So what do you look for when identifying the best investments to own?

Thomas: Actually, it's pretty simple... I just look for the things that make a good stock.

Big market opportunity... smart management... evidence of good capital allocation and efficiency... and, of course, things like how much cash and debt a company has, along with its current valuation levels.

When looking for the best investments in the cannabis space, it's really no different than looking at any other stocks. As long as you have a good, logical process in place... you're bound to find winners.

With that said, the overall understanding of the different compounds in cannabis will be critical. As this understanding gets better, it will drive the true value of the industry.

Today, growing the plants is important because the space is just emerging on a large scale. But ultimately, the biggest winners in this space will be the companies that are the best at processing, branding, and distributing the hundreds of compounds in cannabis.

Learning to identify those companies will be our core mission as we dive in. By sticking to my main principles, I believe we'll soon be able to start earning outsized returns.

Dean: What are some of the potential pitfalls of investing in this space if you aren't careful?

Thomas: That's a tough question. This is such a big market opportunity that is happening almost overnight, so we are trying not to be overly conservative. We don't want to miss out.

Having said that, we're generally going to steer clear of the smallest stocks. We might make exceptions for small-cap stocks that have amazing stories and solid management teams that give us reasonable expectations of big returns. But for the most part, these stocks are just too risky for most investors.

You also want to be on the lookout for a rapidly rising share count...

Many cannabis companies are making deals and using their stocks as the currency to pay for them. That adds more shares to the overall share count – and it dilutes current shareholders. That isn't a nice thing to do to your early investors.

Another red flag is a lack of revenue and dwindling cash in the bank...

Many companies in this space are just now starting to turn a profit. We don't want to own a stock where the timing of profits is questionable, and the company only has three months of cash left to operate – or some other small amount of time. Better to be safe than sorry.

Dean: Speaking of investing in this space, you just launched a new monthly publication called Cannabis Capitalist that will help subscribers pinpoint the best ways to profit. In fact, you've already found four stocks that could soar hundreds of percent or more in the years ahead. Without giving away any specifics, can you tell us a little bit about these businesses?

Thomas: Sure. These four companies have a good mix of the qualities we look for – both operationally and from a valuation standpoint. We've also tried to build in a bit of country diversification as well. By that, I mean we have a little Canada, a little U.S.

But all of these companies have one major thing in common – good management.

That's absolutely critical to investing in emerging companies or start-ups. And at the end of the day, many of the cannabis companies today are essentially publicly traded start-ups.

Dean: What's in store for this new Cannabis Capitalist service in the months ahead?

Thomas: At this point, we will publish a regular report once each month. Beyond that, as important news emerges, we'll be sure to alert our subscribers about what it all means.

Remember, things are changing at light speed in this new, evolving market. We must stay on top of everything. We'll do what we need to make sure every subscriber is prepared.

As you mentioned, we just launched Cannabis Capitalist this week with four initial stock recommendations – as well as a bunch of other bonus items we've thrown in as part of our research. In the coming year, I plan to recommend at least six to eight additional stocks.

Look, with some of the stocks I recommend, we might want to hold forever – or close to it – as they keep moving higher. But I'm not afraid to recommend that my subscribers take profits off the table if I think one of my recommendations has soared out of proportion with the market. We could take the gains... And then get back in at a better price down the road.

My point is, you won't have to worry about being thrown to the wolves in this space. I'll explain everything you need to know about the cannabis space. And more important, I hope our relationship will turn out to be an extremely lucrative one for all of my subscribers.

Dean: Well, Thomas, thanks again for giving us your time this weekend. It has been a lot of fun. I'm looking forward to seeing how you're able to help your Cannabis Capitalist subscribers as the changes in the cannabis space play out in the months and years ahead.

Thomas: No problem. Thanks for having me. I'm really excited to be sharing my investment research at a place like Stansberry Research. It's such a breath of fresh air from my life as a traditional equity-research analyst. I think it's going to be a lot of fun.

Editor's note: Thomas just shared the names and tickers of four cannabis stocks with his Cannabis Capitalist subscribers. Right now, you can sign up – and get instant access to all of Thomas' research – for nearly half off the regular retail price. Get started right here.