The Amazing Retail Cannabis Boom

Cannabis stocks are currently in their Wild West phase.

It’s beautiful madness out there.

Billion-dollar U.S. cannabis stocks trade on the over-the-counter (OTC) market, which is typically used only by microcap or penny stocks. Highly unusual. Canadian stocks, like Tilray (TLRY), can trade on the Nasdaq. But American cannabis companies can’t trade on the big U.S. exchanges due to federal law. Weird.

There are still barely any Wall Street analysts who cover pot stocks.

And more importantly, none of the big financial powerhouses have moved into cannabis in a serious way. Institutional investors, for the most part, cannot invest in this market. This includes wealth managers, mutual funds, exchange-traded funds, pensions, endowments, and hedge funds. Their own internal rules say they can’t invest in anything that’s illegal at the federal level.

Let’s look at an example. Aurora Cannabis (ACB), one of the largest Canadian firms at a more than $7 billion market cap, has only 1.65% institutional ownership. That is low for a multibillion-dollar stock. And it’s not alone. I looked into several big, well-known cannabis companies, and the highest institutional ownership I found was 8.3%.

For comparison, the S&P 500 is 80% owned by institutions. Apple is 63% owned by institutions.

So here we have the fastest-growing industry in North America, and Wall Street doesn’t have a scrap of exposure. And most of it probably won’t be able to buy pot stocks until the U.S. legalizes marijuana at a federal level. And that’s almost certainly years away (stay tuned for Sunday’s Mailbag, where we discuss this issue).

It’s a sweet irony. Usually, big financial firms get the first crack at any rapidly growing investment through private markets. Uber, for example, is going to be a $100 billion company by the time it IPOs! The well-connected big investors are making a killing on this deal. But most haven’t even had a shot at it.

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Jim Trenery 2 months ago Member's comment

Thank you; I didn't realize that institutional ownership was so low.