AAII Survey: Are Individuals Interested in Investing in Marijuana?

A recent Google search for “investing in marijuana” returned over 32 million hits. As more and more states legalize medical and recreational marijuana use, interest in investing in marijuana companies is on the rise.

Even for this budding industry, there are numerous ways you can invest. The most direct way to invest in marijuana is to buy the stock of companies that specialize in cultivating and growing cannabis plants. Some cannabis cultivators focus on making their products available for health care purposes under medical marijuana regulations, while others are looking to compete in the nascent recreational market. Some of these businesses are also seeking partnerships with companies that are not in the marijuana business, such as beverage makers.

Some companies don’t grow marijuana, but they do use some of the ingredients contained in cannabis plants for their own purposes. Companies in this space are developing cannabis-infused drinks, while others are exploring the medicinal qualities of compounds found in cannabis in the hope of finding medical treatments.

Still, more companies are focused on providing the goods and services needed by marijuana cultivators and their end-users. For example, cannabis growers that want to rent industrial space for their greenhouses might work with real estate investment trusts (REITs) that specialize in locating and leasing out such properties. Other companies specialize in helping companies navigate the regulatory restrictions for packaging. Still others provide hydroponic technologies used by many marijuana growers.

AAII Weekly Survey Question

While there is a growing number of options to invest in the marijuana industry, many have reservations about making such investments. To see whether our readers would consider investing, or are currently invested, in the cannabis industry, last week’s member question set out to answer this by asking:

Would you consider investing in a marijuana-focused company or mutual fund/exchange-traded fund (ETF) (or have you already invested)?

Here are the results:

In all, 1,741 readers participated.

Almost half of those participating say they would not invest in an individual company or a mutual fund/ETF related to the cannabis industry.

Another 40% say they would invest in the marijuana industry while the remaining 11% are not sure.

Weekly Special Question

To get a better understanding of why someone may not want to invest in the cannabis industry, last week’s special question asked:

Outside of any moral objections you may have regarding cannabis, what would keep you from investing in a marijuana-focused company or ETF/mutual fund?

In all, we received 233 responses.

Ten percent of those responding were “pro-cannabis,” leaving the other 90% offering reasons why they wouldn’t invest in a company or fund related to marijuana.

The biggest reason against investing in the cannabis industry is legal and regulatory uncertainty, garnering more than 38% of the responses among those who would not invest in the cannabis industry.

One-quarter of respondents say there isn’t a long enough track record for companies and funds involved in the cannabis industry to make them feel comfortable investing in them.

Slightly more than 18% say they don’t know enough about the industry to feel comfortable investing in it.

Fifteen percent of those participating say that marijuana investing is just a fad or it is overhyped.

Almost 12% say they won’t invest in marijuana-related stocks and funds because of the potential health risks posed by its use.

Here is a sampling of the responses from our readers as to what would keep them from investing in a marijuana-focused company or mutual fund/ETF:

• “Too much regulatory risk at present. If the feds decide to enforce the current law and move against these companies, the losses could be swift and deep.”
• “Overhyped and overpriced; a new industry with no barriers to competition like the early days of the automotive business a century ago; lack of disciplined management. Most companies will fail while the others are consolidated into a few winners.”
• “To me, it is a lack of knowledge of knowing which is better: the real thing or a synthetic version of it to create a product that might include additional ingredients that might dilute cannabis’ effect on the body.”
• “I view this as a speculative investment as this is a growing market. The only thing that would keep me from investing would be if medical use were found to be not effective. I believe it to be successful, the industry needs recreational use and medicinal use.”
• “So far, the companies look like momentum plays with no real earnings.”
• “Not comfortable with my understanding of such a newly legal industry.”

Everybody has an opinion! Why not give us yours? Participate in our weekly member poll, updated every Monday, and see the results online at www.aaii.com/memberquestion.