Warren Buffett is a lot of things. In no particular order, he's:
- One of the most successful investors of our generation, having turned seed capital of roughly $10,000 into a net worth of $83 billion in just six-and-a-half decades.
- One of the most philanthropic people alive, having donated tens of billions of dollars to charitable organizations throughout the years.
- The CEO of Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B), a conglomerate that owns approximately five dozen businesses from a variety of industries and sectors, and manages a portfolio that's currently worth more than $218 billion.
- Not reinventing the wheel when it comes to investing. Buffett aims to hold the stocks he buys via Berkshire Hathaway for long periods of time, and focuses his efforts on companies with strong brands and sustainable comparative advantages.
But two things Buffett is not is a big fan of are marijuana and the cryptocurrency craze.
The Oracle of Omaha is critical of cannabis and crypto
Earlier this year, just a day prior to Berkshire Hathaway's annual shareholder meeting, Fox Business sat down with Warren Buffett and questioned him on the possibility that Coca-Cola, one of Buffett's largest and longest-held stocks, would get involved in the cannabis industry vis-a-vis nonalcoholic-infused beverages. The Oracle of Omaha had this to say on the matter:
It would be a mistake for Coca-Cola to get into the marijuana-cannabis business. They have a wholesome image and that would be detrimental to it.
That pretty much sums up Buffett's take on cannabis, and it should really surprise no one. Marijuana's legality changes from country to country, and even state to state in the U.S., and Buffett has never been a fan of buying into businesses that have legal concerns.
As for cryptocurrencies, such as bitcoin, Buffett has proven even more candid. In an interview with CNBC back in 2014, Buffett had this to say about the world's largest digital currency by market cap:
Stay away from it. It's a mirage basically. It's a method of transmitting money. It's a very effective way of transmitting money and you can do it anonymously and all that. A check is a way of transmitting money too. Are checks worth a whole lot of money? Just because they can transmit money? I hope bitcoin becomes a better way to do it. But you can replicate it a bunch of different ways. The idea that it has some huge intrinsic value is just a joke in my view.
Yet, you might be surprised to learn that, among the 47 securities currently held in Berkshire Hathaway's investment portfolio, Buffett actually does have exposure to both cannabis and crypto.
Yes, Buffett has exposure to the cannabis industry
For quite some time, financials have represented the core of Buffett's portfolio. As of the end of the second quarter, financials comprised 47.37% of Berkshire's investment holdings, which is nearly a 13-year high, in terms of sector weighting.
More specifically, Buffett has always loved U.S. money center banks, because they're moneymaking machines. They take in money while paying out very little in interest, then lend out what they take in at a substantially higher rate. All the while, most banks have beefed up their balance sheets in the event of another recession, and they've reduced their expenditures to allow more revenue to flow to their bottom lines. This is why Buffett currently owns $28.5 billion worth of Bank of America (NYSE:BAC), $20.1 billion worth of Wells Fargo (NYSE:WFC), and $7.1 billion worth of JPMorgan Chase (NYSE:JPM), to name a few major big-bank holdings.
What you might not realize is that while most banks have avoided the U.S. weed business altogether, mainly out of fear of financial or criminal penalties since marijuana is still a Schedule I drug at the federal level, Bank of America, Wells Fargo, and JPMorgan Chase have all dabbled, to some small extent, in providing basic financial services to marijuana companies in legalized states.
Back in 2017, a study published in financial services journal American Banker that examined Massachusetts medical marijuana businesses between June 2015 and September 2016 found that just over a third of them (34%) had an account with a big-four bank in the U.S. -- that's Bank of America, Wells Fargo, JPMorgan Chase, or Citigroup. It was noted in the study that of these big banks, Bank of America was the most accommodating to cannabis businesses. Even though we're only talking about one state out of 50, it's pretty likely that access to basic financial services for the weed industry has expanded over the past couple of years.
Furthermore, the House looks to be on the verge of passing the SAFE Banking Act, which could open up new avenues for big banks to offer financial services to marijuana businesses.
Buffett also has exposure to cryptocurrency and blockchain
In addition to having marijuana exposure in Buffett's portfolio, there's also exposure to cryptocurrency and blockchain development. Blockchain being the digital ledger underlying digital tokens that processes and records transactions in a transparent but immutable way.
Though Buffett's portfolio doesn't have specific exposure to bitcoin, some of the Oracle of Omaha's largest holdings are dabbling in the "mirage."
For example, in February, JPMorgan Chase announced that it had successfully tested an experimental digital token known as JPM Coin for transferring international payments as cryptocurrency between some of its corporate clients. According to JPMorgan, the network used is a private version of the popular Ethereum blockchain. The beauty of blockchain is that it bypasses old payment transferring architecture and allows payments to be validated and settled in a fraction of time it would usually take. Rather than waiting a week for a payment to be validated and settled, crypto and blockchain offer the ability to do this in mere minutes or even seconds.
JPMorgan has also considered using its digital token to replace wire transfers when purchasing securities, and may opt to use crypto to represent cash on its balance sheet, thereby allowing it to consolidate its cash to generate higher interest income.
On the blockchain side of things, longtime Buffett holding American Express (NYSE:AXP) is tinkering with a number of possible solutions. In July, it was disclosed by the U.S. Patent and Trademark Office that American Express had filed for a patent on a blockchain-based proof-of-payment system. This system, which would utilize encrypted payload data, could be accessed by identified smart devices and used for everything from renting real estate to ticketless access to venues.
American Express has also used the Hyperledger Fabirc to create a blockchain-based rewards network. The idea is that consumers are able to make purchases that net them "points," which are essentially logged in token form on the blockchain. Not only does utilizing blockchain virtually eliminate the loss and error associated with paper-based reward programs, but it should help keep users loyal to specific businesses operating this ledger.
Right now, the impact Buffett's portfolio feels from marijuana and cryptocurrency/blockchain is pretty minimal. But as growth in these industries picks up, so will the Oracle of Omaha's exposure.