The continuing exponential growth of the cannabis industry has American investors seeing green.
The cannabis industry is one of the fastest growing job markets in the country. Eleven states and the District of Columbia have legalized and decriminalized the usage of marijuana. Another 30 have decriminalized its usage or allow for medicinal usage or a combination of the two.
Additionally, usage of marijuana has grown across all generations. With statistics like that, it’s no surprise that the 2019 Trends in Investing Survey found that investors are looking to get in on the action.
The Financial Planning Association’s annual survey found that investors are asking about cannabis stocks and companies. In fact, over the past six months, 55% of respondents said that clients have inquired about investing in marijuana or cannabis. Last year, the topic wasn’t even included in the list of topics on the survey. This year, the only topic more common than cannabis among investors and their portfolios was market volatility, which 70% inquired about.
Despite the increased interest from investors, advisors are skeptical.
David Silversmith of Grassi & Co. in New York said, “I would not invest with any fund which invests in small-time cannabis dispensaries. If cannabis is ever legalized on any federal level, big stores like Walmart and Target will be selling cannabis for much cheaper prices than anything in a dispensary. So the dispensaries most likely will go bankrupt.”
Sorry investors, he’s not the only advisor to bust the cannabis bubble.
Jeffrey Edwards of Atlas Financial Plans in Irvine, Calif. said, “In the short-term, it’s a fad. It’s new, legal and here to stay. In the long run, it will eventually fall under ‘vice’ investing, along with tobacco, alcohol and defense.”
For advisors who have received questions about cannabis or are working with investors who are interesting in investing in it, Edwards suggests advisors air on the side of caution while showing eager investors potential options.
“I think clients are always ready to chase the next ‘big thing.’ It’s my job to remind clients that institutional money management has already stepped into the cannabis market,” Edwards said. “For example, I show them Vanguard Total Intl Stock Index is the largest shareholder of Aurora Cannabis. American Funds SmallCap World is the largest shareholder in GW Pharmaceuticals. Of course, it’s diluted, but the average investor feels they’re getting that ‘participation’. For clients that want more direct exposure, I encourage them to keep it limited to 5% of their portfolio.”
AdvisorNews Managing Editor Cassie Miller may be reached at cassie.miller@Adnewsfeedback.com. Cassie has an extensive background in magazine writing, editing and design. Follow her on Twitter @ANCassieM.