Wall Street and Marijuana Stocks
It’s no secret that when it comes to investing, there’s no better place to find wells of cash than Wall Street. The famed New York City area houses hundreds of billions of dollars in capital waiting to be doled out to companies that the bank bigwigs deem enticing.
For marijuana companies, getting in on the Wall Street action is another way for them to see massive stock growth.
We’re already witnessing an increasing interest of Wall Street in pot stocks.
For instance, Viridian Capital Advisors, which says it’s the first licensed investment bank for cannabis, has been fielding a ton of offers from family offices, hedge funds, and wealth investors that are seeking to invest in the U.S. pot industry. According to the bank, it has been turning down 95% of the calls it gets. (Source: “U.S. bankers are answering the call of cannabis as deals flow away from Canada,” Financial Post, July 23, 2019.)
And it’s not only boutique investment firms that have begun getting interested in marijuana stocks. Large U.S. banks have also begun to interact with cannabis. Last year, Goldman Sachs Group Inc (NYSE:GS) and Bank of America Corp (NYSE:BAC) both participated in the Constellation Brands, Inc. (NYSE:STZ) deal to acquire a huge chunk of marijuana leader Canopy Growth Corp (NYSE:CGC) for $4.0 billion.
And it makes sense that banks would want to get in on the action. After all, legal marijuana sales surged passed $10.0 billion in the U.S. last year. In 2019, an 11th U.S. state legalized recreational pot, and dozens of states permit medical marijuana.
But therein lies the problem: state by state, we have different marijuana laws, while a federal prohibition still remains in place, preventing larger institutions from going full bore into the marijuana industry.
But that may be changing. The Secure And Fair Enforcement Banking Act of 2019 (SAFE Banking Act) is set to receive its first ever Senate hearing. The U.S. is considering whether to permit large banks to essentially circumvent the national prohibition in order to help fund pot companies and store the large amounts of cash that are generated from the marijuana business.
States like California have seen upticks in armed robberies of marijuana storefronts due to the largely cash business. This is the direct result of many banks being unwilling to handle legal marijuana sales because, if the money crosses state lines, that is technically a federal offense.
While unlikely to draw intervention from the federal government, why bother taking the chance? That’s the calculation many banks have been making, and the result is that the marijuana industry needs more capital storage—and access to more funding.
And that’s the most important aspect of this as far as investors are concerned: there’s all this untapped potential waiting within marijuana stocks that will only be accessed once banks feel comfortable fully interacting with the pot industry.
Considering that the legal marijuana sector is still in its infancy, capital injections are hugely important, and will allow the current $10.0-billion industry in the U.S. to balloon into a worldwide—potentially $100.0-billion—industry in the coming years.
It’s going to take a lot of money in order to fund this growth, and that’s where big banks come in. Right now, there’s a lack of massive pools of investment money, but as I explained earlier, that is changing. As Wall Street and marijuana stocks continue to form a relationship with one another, expect to see the results on the pot stock market.
Access to capital is a huge need of any young industry, and marijuana is no different.
At this point, there’s a sore lack of big institutional investment, but that is changing. When the U.S. finally permits full-on investment from large banks, the capital that will be available to the cannabis market will be unrivaled. That will lead to massive jumps in share value across the board, much like what we saw when Constellation Brands invested in Canopy Growth.