Market Turmoil: Has Robinhood Introduced Millennials to the downside risk of Pot Stocks?
Editor’s note: Recent market turmoil due to the spread of the Coronavirus has exposed investors to losses and volatility. Many young investors, who have never experienced a stock market crash, have been piling into stocks for years with the easily accessible investing app, Robinhood. These millennial stock pickers have shown particular interest in “pot stocks”, or cannabis companies – to be formal about it. While the growth potential exists, the uncertainty around marijuana investments will continue to cause volatility. The following article highlights some of the opportunities and risks facing millennial investors when it comes to pot stocks.
by Alexis Morrell
The accessibility of money management for apps like Mint and Quicken have introduced many a Millennial to the novel concept of saving money through the use of their smartphones; and a litany of other personal finance apps aim for young adults as promising and sleek programs that make managing and investing money a simpler task.
Robinhood is the hottest new venture particularly into making the stock market accessible for young adult consumers, and it’s been highly lucrative. In May 2018, the company raised $539 million in venture capital funding, and now its estimated worth is around $7 billion. They even recently announced an expansion into the United Kingdom. The app has been praised by journalists and consumers for its easy to use interface and lack of a broker or commission fees. Along with increased access to stocks and cryptocurrency, Robinhood allows for Millennials to invest in publicly traded marijuana companies, often referred to as “Pot Stocks” across social media.
A portion of the most widely-held stocks on the app are marijuana stocks, including Aurora Cannabis at No.1. At one point Aurora even managed to dethrone tech behemoth Apple as the leading stock on Robinhood; it also towered above General Motors, Ford Motors and even Microsoft. A culmination of factors lead to cannabis stocks taking over the lists; their rather low investing points (often under 10$ per stock) which appeals to Millennials who don’t have the funds to invest in shares with $1000+ price tags such as Amazon or Alphabet, and the potential growth due to marijuana legalization across several American states, which many experts have speculated will become nationwide in the next few years.
The growth in weed stock popularity are mirrored (and likely caused by) comparative rates of expansion by the recreational and medical marijuana industries. Colorado gained over $1 billion in revenue from medical cannabis sales in 2019; the first publicly-traded marijuana company selling medicinal products, Medical Marijuana, Inc, reported profits of over $20.7 million in just the second quarter of 2019 alone. The legal market as a whole has been projected to reach and potentially surpass $66.3 billion by 2025. But while success may loom on the horizon, the current stock market trends for weed stocks is not reflective of this yet. Aurora Cannabis has hit a 52-week low on the market, and investors are growing wary. Given that cannabis has still not been fully recognized as safe by the FDA and thus has not been given the greenlight for wider distribution just yet, this could certainly impact companies like Aurora. The volatility of these up-and-coming companies can also be explained by the fact that they’re still growing; it may take several years for a business to become more established, stable and profitable once it gets past certain infrastructural renovations and self investments. For now, cannabis companies will need to raise capital and cash in order to sustain operations until they are profitable, or at least cash flow positive.
As legalization creeps into the probable inevitability of becoming nationwide, Robinhood will likely remain king for Millennial marijuana investments. Aurora cannabis, Cronos Group and Canopy Growth are all projected to expand their businesses going into 2020; and time will tell who the winners will be in the highly competitive cannabis industry.
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