Marijuana Institutional Investors Flock to Pot
The marijuana industry has had a long, and at times difficult, task of shedding its stigma. After all, this is a drug that was largely illegal across the U.S. and much of the world for decades, and to this day it remains federally prohibited by the American government.
Still, as the industry continues to mature, it becomes impossible for institutional investors to simply sit it out and watch others reap huge profits.
And that brings us to the big news: a number of pension funds have been flocking to a certain marijuana real estate investment trust (REIT), potentially giving the company access to billions of dollars of capital. It also speaks to a growing trend in the marijuana market more broadly.
I touched on this in my “Marijuana News Today” column, but I figured it was worth a more in-depth look because this could truly be the catalyst for an entirely new crop of investors coming to the marijuana market.
You see, institutional investors have been skittish when it comes to entering the pot stock market. For investment banks, the reasoning is straightforward: transferring money from pot companies across state lines is technically in violation of the federal prohibition on marijuana.
While unlikely to face prosecution, many firms believe it better to be safe than sorry, and therefore don’t want to hold on to money from the pot industry or invest in pot companies.
On the flip side, you have other traditional investing institutions, like pension funds, that have stayed away from the cannabis stock market due to its volatility. After all, when you’re playing with teachers’ retirement funds, going big on a sector that is known for wild, and at times unpredictable, swings is a hard sell.
But that reputation of marijuana stock volatility is being shed and we’re seeing pension funds from many states invest in the marijuana REIT Innovative Industrial Properties Inc (NYSE:IIPR).
My predictions have been pretty spot on for IIPR stock since I began tracking it, foreseeing its huge rise and subsequent correction. Overall, the company is well situated to see strong growth in the coming months and years, even if the near term will see a loss of value as the market tries to recalibrate the stock’s value.
All in all, however, I see Innovative Industrial Properties stock surging in the next year.
But this article isn’t concerned with IIPR stock specifically. Instead, I want to look at what the entrance of marijuana institutional investors means for pot stocks in general.
Marijuana Stock Market Set to Boom
It’s hard to be overly bullish on marijuana stocks right now since we are in the midst of a correction.
However, as I’ve written countless times before, any investor who abandons ship at the first sign of a market pullback, especially in the pot sector, is suffering from extreme nearsightedness.
We’ve seen pot stocks rise and fall about half a dozen times by now, and almost every time there’s a correction, it’s followed by a boom in the market that far outweighs the losses.
Even 2018, which saw a prolonged downturn, ended with marijuana legalization in Canada and a boom time in the industry.
Now the signs are here that another marijuana market surge is in the works, and pension funds jumping in on pot stocks is a great sign.
What this means for cannabis stocks is that there is a growing renown surrounding the industry that is drawing in these bigger players.
Moreover, pension funds are stable, “sticky” investors, meaning they put money in for the long haul. That means long-term projections of growth and gains. That also means some of the largest funds in the country are now projecting long-term growth in the industry, which is good news for us “little guy” investors looking to make a buck.
The trend also may lead to the creation of a positive feedback loop, whereby institutional investors pour money into the marijuana industry, which then uses said capital to fund growth projects, which then increases profits, which then boosts stock value, which then gives access to more capital, drawing in more investors, etc.
Marijuana stocks are already among the best investment targets for small-hold investors. It’s now looking like the big fish are finally taking notice and finding their courage to invest in an industry that is still in its growth phase.
And pension funds will hardly be the last marijuana institutional investors. As political moves like the Secure And Fair Enforcement Banking Act of 2019 (SAFE Banking Act) in the U.S. gain traction, there’s a good chance that we may see other large investors flock to the pot stock market.
The overall effect, then, of having larger investors come into the market is that it creates an atmosphere of confidence and enthusiasm around the stability of pot stocks (some more than others, of course, with marijuana REITs being at the top of the list). That will help boost marijuana stocks the whole way around.
Not to mention that, with government funds now actively involved in the marijuana industry, politicians who seek to oppose pot legalization are going to be endangering the investments of their constituents. Regardless of whether a politician is morally opposed to pot, that’s a hard sell to voters when you’re actively doing something that may hurt their retirement funds.
The result may be that, even the most fiery opponents of marijuana will have to think twice about legalization or soon find themselves out of a job.
And, as I have said many times before, the closer we get to marijuana legalization, the closer we get to another massive boom in the marijuana stock market.
Yes, there is a marijuana correction going on right now, but all signs point to a boom on the horizon for marijuana companies.
With institutional investors coming into the pot industry and the political class having no choice to but to consider more and more pot reform bills, it’s looking like the next year or so is poised to be one of great change—and great opportunity—for marijuana stocks.