According to a new survey, there’s a coming wave of investors ready to put their money into cannabis…
Not many people invest in cannabis stocks. You are among an elite group of “early adopters” who understand how this industry is going to grow, leaving 2019’s bad year for cannabis equities as just a distant memory.
I’ve written a lot over time about how new investors will be coming in to buy shares, sending prices higher and returning the industry’s stock prices to something which matches the growth of the industry.
Now a company called GOBankingRates has generated some statistics that prove my point. The organization interviewed more than 800 investors about their attitude toward cannabis investing and the results were pretty amazing.
While half of the respondents said that they did not intend to invest in cannabis stocks – something we know will change over time – the more interesting figure was the split between investors who already owned cannabis stocks and those who plan to.
As you can see from the chart above, only 9% of retail investors reported currently investing in cannabis. And 39% of the survey’s respondents, or more than four times as many, said that they were open to cannabis investing in the future.
If you think that increasing demand for cannabis stocks might make some of them soar, you’re right.
The most powerful find from the GOBankingRates survey was what respondents thought would get that 39% of potential cannabis investors to move.
The big one was federal legalization. By that time stocks will already be much higher than they are now, but it’s nice to know so many people will still be there to buy shares when the big event happens.
But that’s not the only thing that respondents thought would get people to move.
Catalysts That Will Drive New Retail Investments
Based on the survey, simply learning that friends and family have invested in cannabis would get 6% of survey respondents to become more likely to invest. That’s two-thirds of the current market participants – which means that you may be able to increase the value of your portfolio simply by telling your friends and family that you are invested in cannabis stocks and are continuing to buy during this downturn.
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Profits would get 15% of retail investors to move. That makes sense – a lot of more conservative investors wait until a company is profitable before investing in it. It’s a lower-risk, lower-return strategy that is appropriate for many investors.
More IPOs would also induce investors to make their move. That surprised me since there are already over 200 cannabis companies to choose from. There aren’t even 200 cloud computing companies!
It’s possible that what that statistic really means is a lot of people aren’t aware of just how many investment options already exist. Either way, new IPOs will come next year, and they’ll be better for having learned the lessons of the 2019 crop.
A recommendation from a financial advisor would make nearly 20% of people more likely to invest – that’s double the current market. And as I’ve written to you before, some of the biggest companies are finding ways to allow their financial advisors to recommend and trade cannabis stocks. I have no doubt that their motivation to do that comes from the financial advisors themselves. They wouldn’t bother if their customers weren’t demanding it.
And of course, as I mentioned, the big catalyst will be when the federal government legalizes cannabis. As with the profits, this is a more conservative investment strategy that makes sense for many investors, though their gains will be less than those who are in before federal legalization happens.
We may also find that after federal legalization happens, some of that other half of retail investors will reconsider their anti-cannabis stance.
An Even Bigger Wave of Investors Is Coming
Finally, I want to reiterate that this survey covered retail investors only – people like you and me. But there’s another big wave of investment in the industry coming which is even bigger than the increased number of retail investors.
I’m talking about institutional investors, of course. Pension funds, mutual funds, charitable and educational endowments, and the like.
And while GOBankingRates didn’t poll institutional investors, I can tell you that the answers they give will largely be the same. A few will start investing, and more will come when they find out about those early investors – the institutional equivalent of friends and family.
Another group will come in when their board of directors decides that cannabis is no longer bad – because if a company is buying beer stocks, they should be buying cannabis stocks.
Profits will be a big driver of institutional investments, particularly in this market. Those institutions got burned by companies like Uber and Slack which are not showing profits.
And again, federal legalization will be the biggest catalyst for this group – perhaps even more important than it is for retail investors. That’s because many of these companies insist that the stocks they buy trade on a larger exchange like the NYSE, Nasdaq, or Toronto Stock Exchange. And the American companies can’t list until cannabis is federally legal.
I’ve always known these new investors were coming, but it’s always good to have some backup and more specific information about what will draw them in.
And with five of the six reasons happening or increasing next year, 2020 is shaping up to be a very good year for cannabis investing. Make sure you’re ahead of the wave with our free guide to The Best Pot Stocks to Buy in 2020.
Executive Director, National Institute for Cannabis Investors
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4 responses to “How the Coming Wave of New Investors Will Power Your Portfolio”
December 05 2019