Who's Interested in Marijuana Stocks?

Many of our readers are very interested in cannabis stocks and the investing possibilities emerging from the legalization of marijuana in Canada and several U.S. states. This has become a big trend in investing and finance that has been amplified by the parabolic rise and fall of hot marijuana stocks like Cronos Group (CRON) and Tilray (TLRY). They’ve gone from penny stocks to companies worth tens of billions of dollars (on paper) overnight, and back down again. That’s what happens in investing manias. We saw this with cryptocurrency last year as bitcoin and other tokens soared to breathtaking heights and grabbed our readers’ attention.

Some were interested in learning about what bitcoin and other cryptocurrencies were all about. Others were more interested in the blockchain and its potential to disrupt industries. But most people were fascinated with the wild price swings in cryptocurrencies and were learning how to trade it and spot opportunities to make money. Most of those readers were younger, ages 18-24, and lived primarily in the Northeastern U.S., Florida, California and Oregon.

We thought we’d see a similar pattern with marijuana investing. We were right about what interested them in marijuana stocks, but very wrong about who was interested in the topic. Way wrong.

In the U.S., our readers in Nevada, Florida, and Vermont were more likely than average readers to engage with cannabis stock related content. There are a lot of older readers in both states who may be interested in investing in cannabis stocks in addition to the medicinal and commercial potential of cannabis and cannabinoids. Hawaii, Michigan and Montana represented the states with the second-highest reader interest. Michigan voters just approved the use of marijuana for recreational purposes in the mid-term elections. Readers in Utah, Oregon, Kansas and Virginia were less interested in reading about marijuana investing.

As for the first cohort, Vermont and Nevada have legalized recreational use of marijuana. Nevada also permits legalized gambling. Florida allows medical use, but recreational use was not on the ballot for 2018.

The logical assumption is that states with more-recent legalization of marijuana would likely see higher than average interest in marijuana content while states that have had legal pot for longer would not. Our data, however, proves otherwise.

While Nevada and Florida conform to the first part of that theory, readers in states such as California, Massachusetts and Maine are less likely than average to read about marijuana, despite recent legalization measures.

Among states with a longer history of legal marijuana, Washington and Oregon show tepid interest while our readers in Alaska and Colorado continue to show healthy enthusiasm for the subject.

Change in state laws to legalize marijuana in any form are always accompanied by heated debates, but the data above highlights that all that hype doesn’t really translate into active interest by our readers looking for marijuana investing content.

Who is reading the most on the topic? We saw that our more-sophisticated trading and investing audience would potentially have the highest level of interest in pot stocks. Looking at the math, those who follow technical analysis in our Chart Advisor channel were the most interested compared to average, followed by our ETF readers and cryptocurrency enthusiasts.

This made intuitive sense to us. Given the relative youth of publicly traded marijuana companies, they don’t have long financial track records that allow investors to analyze their fundamentals. Most of them have paltry sales figures and almost none of them are profitable. Looking at their price to earnings or price to growth metrics is almost futile since many lack both.

Charting their share price movements on a daily, hourly or minute-by-minute basis, however, is possible and downright dizzying. On Sept. 19, 2018, the day Tilray eclipsed $28 billion in market cap for a few hours, trading volume hit 30 million shares, three times the stock’s daily average, according to Nasdaq. It was halted five times for trading due to the extensive order flow. There are only 21 million outstanding shares of TLRY to begin with!

Forex enthusiasts — those who trade currencies — also use technical analysis in their trading strategy. Those traders typically move in and out of positions rather quickly, like day traders. Curiously, though, there was scant overlap with those readers and those interested in marijuana stocks. It may be explained by the fact that forex trading requires a particular discipline, focus and knowledge of global markets that is not necessary for trading pot stocks.

The section above does give us a look into the mindset of our readers and what kind of investing strategies they are likely to adopt. It's safe to say, that those with a higher risk appetite, a day trading bent of mind and a more aggressive investing strategy were more likely to be interested in marijuana content on average.

Readers interested in bonds, retirements, annuities, asset classes typically favored by those with a long-term, risk averse and cautious investors were likely to avoid such content.

That paints a mental picture of the interest skewed towards a younger audience and away from the older readers.

But hold onto that thought….

Almost 57% of all the interest in marijuana content comes from readers over 35 years of age. If we assume that the people that are into marijuana are the people that are into marijuana stocks, this is surprising. (But few people under 24 are into investing of any kind...)

To truly understand the age distribution of marijuana interest outside of investing,  we examined the reader analytics on our sister sites at Dotdash such as TheSpruce.com, TheBalance.com and health and wellness site VeryWell.com, to capture reader interest by age. Our assumptions were way off.

Interest in pot stocks skewed much older than we thought it would:

• 18-24 year-olds are 35% less likely than average to be interested

• 45-60 year-olds are 25-30% more likely to be interested

• Males outweigh females in marijuana stock interest: 79.7% vs. the Investopedia average of 64.8%

Typically, younger investors are associated with riskier and aggressive investments while older investors are seen as preferring safer and more stable investments. The marijuana industry is still young and marijuana stocks investments are nascent investment plays which is why this age distribution skewing towards older readers was unexpected.

• The crypto enthusiast interest is the least surprising group to us. We saw a similar spike in traffic with them a year ago when bitcoin topped $20,000 for a few minutes. However, the age differences between the crypto enthusiasts and the cannabis stock readers is notable. TD Ameritrade released a study back in September, according to Bloomberg, which showed that both crypto and cannabis trading was predominantly done by millennial-aged men who day-trade. Our data tells us that the cannabis reader is much older.

• When you look at the intense swings that marijuana stocks make on a daily, even hourly basis, it stands to reason that technical analysts who follow price movements would be the most attuned to the dynamic trading activity in this speculative group. The ETF crowd is a little surprising, however. Yes, several marijuana ETFs were launched this year, and Horizons Marijuana Life Sciences Index ETF (HMMJ), the Canada-based marijuana exchange-traded fund, surpassed $1 billion in assets in July. But by and large, ETF enthusiasts tend to have a longer time horizon than day traders, at least on our site.

• Our assumption of marijuana content interest fading over time since legalization was thrown out of the window by trends in Alaska and Colorado. While the waning excitement of readers in states with newly legalized recreational pot, such as California, Maine and Massachusetts, also laid waste to that theory.

The mainstream market for marijuana stocks is still nascent given the recent companies that have gone public on the U.S. markets, even though many Canadian companies have traded over-the-counter in the U.S.. Marijuana still remains illegal at the federal level in the U.S., and the federally regulated banking system forbids marijuana companies from using it. It is far from mainstream and that is also reflected in the small demographic of people who trade marijuana stocks.Those that do are mostly trading on technical price moves that may be driven by a news snippet or rumor, but not based on fundamental analysis. Volatility is extreme, valuations are exorbitant and gains can vanish in a wisp of smoke.

It is not surprising that active traders are eagerly consuming our marijuana content in a bid to get in and out to make a quick buck in the short-term. But the startling age distribution of those who read marijuana related content interest has us wondering if the cautious retail investor is educating themselves while waiting in the wings for the industry to really take shape before they join the party.