Thursday, 5 August 2021

43% of Investors Have at Least One Cannabis-Related Stock or Fund, With Users 4 Times As Likely to Invest

43% of Investors Have at Least One Cannabis-Related Stock or Fund, With Users 4 Times As Likely to Invest
14 Jun
8:08

Updated on Monday, June 14, 2021

With support for cannabis legalization at an all-time high in the U.S., it shouldn’t come as a surprise that more people are investing in cannabis-related stocks. The latest MagnifyMoney survey of more than 1,200 investors found 43% currently invest in the cannabis industry.

And given the majority of those investors got involved in 2020 or 2021, it’s not unreasonable to imagine more investors joining them soon.

  • Cannabis-related investments are becoming widespread. 43% of investors currently hold at least one cannabis-related stock, whether it’s an individual stock, mutual fund or exchange-traded fund (ETF).
  • Most cannabis investors recently put money in a related stock or fund. More than a third (34%) said they did in the past week, with an additional 33% in the last month. Separately, 60% expect to invest more money in cannabis in the next six months.
  • Cannabis consumers are more likely to invest in those stocks. 65% of investors who use cannabis invest in related stocks, while only 16% of investors who don’t use cannabis invest in the industry.
  • Those not investing in cannabis may be more willing to do so should its consumption become legal at the federal level. 53% of those not investing in cannabis said they’d consider doing so at that point.
  • More people expect to get rich off cannabis investments than those who think they’ll get rich by investing in cryptocurrency. 75% of cannabis investors said they believe they’ll get rich because of those investments, compared with 62% of crypto investors who said the same about related investments.
  • Cannabis investors aren’t in it for the short term, but they also don’t expect to hold their investments forever. Most cannabis investors expect to hold on to their current cannabis investments for one to three years (48%) or four to six years (26%). Just 8% expect to do so for 10-plus years.

Cannabis use stagnates, but investors’ circle expands

Despite the percentage of Americans who report smoking marijuana remaining relatively flat over the past few years, according to Gallup, a large share of investors are now buying cannabis-related stocks. In fact, 43% of investors hold some form of stake in cannabis.

Plus, most of those investors (66%) have bought shares of individual cannabis stocks instead of ETFs or mutual funds that include cannabis. And investors see potential for the industry, citing long-term growth predictions and high demand as two of the most common reasons for investing.

Given the large share of respondents who invested in cannabis for the first time just last year, that pool is likely to expand. Of those with investments, 40% made their first cannabis-related stock purchase in 2020 — and another 23% in 2019. With 20% of investors having started to experiment with cannabis stocks in the first half of 2021, it’s feasible even more will be betting on green by the end of the year.

Further, many cannabis investors invested as recently as a week before the survey. 34% of investors put money in cannabis-related stocks within the last week, with another 33% reporting investing in the last month. What’s more, 60% of cannabis investors plan on investing more money over the next six months.

Where there’s smoke, there’s investment

Based on the survey’s findings, it’s possible cannabis use may lead to cannabis investing. More than three-quarters (78%) of investors who report using cannabis have invested in the industry at some point, with 65% currently holding investments.

Pro tip: “Investing in products and companies you use can give some insights into the prospects of a stock, but it’s only one factor and certainly not a guarantee of positive returns,” LendingTree chief economist Tendayi Kapfidze says.

As for those who aren’t investing in cannabis, personal opinions typically aren’t what’s stopping them. More than 4 in 10 (41%) non-investors haven’t thought about buying cannabis stocks. Another 25% of those who haven’t invested say a lack of market knowledge — like which stocks or funds to buy into — might be stopping them.

Additionally, the end of federal cannabis prohibition could spur a new wave of cannabis investors. Under federal law, cannabis possession for medical or recreational use is still strictly prohibited. That doesn’t mean you’ll be arrested for investing in cannabis stocks, but the growth of the overall cannabis market continues to meet obstacles due to prohibition, even as it’s legalized in various states across the U.S.

Perhaps due to an understanding of those hurdles, 53% of those currently not invested in cannabis stocks would consider investing if the plant became federally legal.

“Legalization could lead to a larger market as more people use cannabis and research leads to more use cases,” Kapfidze says. “Previously, investment in this space meant engaging in illegal activity at significant personal risk.”

Cannabis investments more popular with young investors but bigger from older investors

Younger investors appear to be more interested in cannabis-related assets. More than half of each of the two youngest generations of investors surveyed report investing in cannabis stocks — 62% of Gen Zers (ages 18 to 24) and 54% of millennials (ages 25 to 40).

A significant number — 47% — of Gen X (ages 41 to 55) investors have also gone in on ganja, still much more frequently than the 16% of baby boomers (ages 56 to 75).

But while it is a small pool of baby boomer investors, their investments are more likely to outsize the younger folks. The majority of investors in each generation (except baby boomers) report investing less than $500. More than half (53%) of boomer investors have contributed more than $500, with 38% reporting investing more than $1,000. Overall, less than a quarter (24%) of investors have surpassed that threshold.

The older generations are also more likely to invest in companies focused on medical cannabis rather than recreational use. While Gen Zers and millennials distribute their investments close to evenly between medical and recreational cannabis companies, older generations show a clear preference. Baby boomers are four times as likely and Gen Xers are twice as likely to invest in medical cannabis versus recreational cannabis companies.

Investors are confident cannabis investments will deliver high returns

With legalization expanding across more states, it’s understandable that some investors predict significant financial gains in the future. Of those currently invested in cannabis stocks, 75% find it at least somewhat likely that they’ll get rich off their investments:

  • Extremely likely: 43%
  • Somewhat likely: 32%
  • Somewhat unlikely: 18%
  • Extremely unlikely: 7%

Like other investing trends like cryptocurrency or nonfungible tokens (NFTs), uncertainty about future use, acceptance and legitimacy might be keeping investors hopeful — while deterring naysayers. The three-quarters of investors who think they’ll get rich on cannabis stocks show more faith than the 62% of cryptocurrency investors who believe crypto is their road to riches.

Nevertheless, cannabis investors don’t generally expect that wealth to manifest overnight. Almost half (48%) of investors expect to hold their investments for one to three years, with another 26% planning to hold for four to six years. Just 8% of investors are currently expecting to hold their assets for more than 10 years — perhaps hoping that they will make their expected returns within the next decade.

Light up your portfolio

Whether you’re looking to invest in cannabis stocks or just looking to grow your investment portfolio, use these tips to get started:

  • Find a financial advisor. Especially helpful for high-earners, a financial advisor can help you make informed investment decisions and minimize tax liability.
  • Use a robo-advisor.Robo-advisors use algorithms to automate your investing strategy, which can make them a great option for beginners.
  • Do your homework. Before you invest in any company, you’ll want to do some research to determine if it may be a good investment and perhaps whether it aligns with your values.

MagnifyMoney commissioned Qualtrics to conduct an online survey of 1,233 U.S. consumers with an investment account from May 3-6, 2021. The survey was administered using a non-probability-based sample, and quotas were used to ensure the sample base represented the overall population. All responses were reviewed by researchers for quality control.

We defined generations as the following ages in 2021:

  • Generation Z: 18 to 24
  • Millennial: 25 to 40
  • Generation X: 41 to 55
  • Baby boomer: 56 to 75

While the survey also included consumers from the silent generation (defined as those 76 and older), the sample size was too small to include findings related to that group in the generational breakdowns.

Source: https://www.magnifymoney.com/blog/news/cannabis-related-stocks-survey/

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