What is the "picks and shovels" investment strategy?

The "picks and shovels" strategy refers to investing in companies that supply essential tools and services to an industry, rather than in the companies that produce the end product. The name comes from the California Gold Rush, where the most reliable profits often went to those selling mining tools rather than the miners themselves. In this context, it means investing in the technology providers, equipment suppliers, and service companies that support vice industries like gambling and cannabis, rather than investing directly in casinos or cannabis producers.

Why invest in vice-adjacent companies instead of direct vice stocks?

Vice-adjacent companies often face fewer regulatory hurdles and social pressures than direct consumer brands in "sin industries." While a cannabis producer or casino might face changing regulations, advertising restrictions, or social stigma, the companies that provide them with essential technology, equipment, and services can operate more under the radar. These B2B suppliers are often indispensable regardless of which consumer brands dominate the market, potentially offering more stability while still benefiting from the overall growth of vice industries.

What is iGaming and why is it mentioned with several stocks?

iGaming refers to online gambling, which includes casino games, poker, sports betting, and other forms of wagering conducted over the internet. Several stocks in this group provide the technology platforms, game content, or marketing services that power the iGaming industry. This sector is experiencing significant growth as more regions legalize online gambling, creating new markets for these service providers. The companies developing software, processing payments, or driving customer acquisition for iGaming operators stand to benefit from this expanding market without necessarily taking on the same regulatory risks as the gambling operators themselves.

What does "Market Cap" mean in the stock information?

Market capitalization (Market Cap) is the total value of a company's outstanding shares of stock. It's calculated by multiplying the current share price by the total number of shares available. Market cap helps investors understand the relative size of a company: large-cap companies (typically over $10 billion) are usually more established but might have slower growth, mid-cap companies ($2-10 billion) may offer a balance of growth and stability, and small-cap companies (under $2 billion) might offer higher growth potential but with greater risk. The market cap provides context about a company's scale within its industry.

How do legislative changes impact these vice-adjacent stocks?

Legislative changes, particularly the legalization of activities like sports betting and cannabis in new regions, create significant opportunities for vice-adjacent companies. When a state or country legalizes these industries, it opens entire new markets requiring the same essential infrastructure: payment processing systems, compliance software, cultivation equipment, game development platforms, and more. Unlike the consumer-facing brands that might compete fiercely for market share, these B2B suppliers often benefit regardless of which end-product companies succeed, as they provide the fundamental tools needed by all players entering the newly legal markets.

15 handpicked stocks

Vice-Adjacent Economy

These carefully selected stocks represent the unsung heroes behind billion-dollar vice industries. Rather than betting on consumer-facing brands, our expert analysts have identified the essential B2B companies that provide critical infrastructure, technology, and services that make these markets possible.

Han Tan | Market Analyst

Updated 2 days ago | Published at juin 17