In case you haven't noticed, marijuana stocks have the full and undivided attention of Wall Street and investors. A projected four- to sixfold increase in worldwide cannabis sales over the next decade, coupled with triple- or quadruple-digit percentage gains in popular pot stocks over the past couple of years, is generally a good way to keep investors intrigued.
However, there's perhaps no group of investors more excited about the rise of cannabis than millennials.
Millennials really love pot stocks
In Gallup's October 2018 survey on marijuana, the national pollster found that 66% of Americans favored the idea of broad-based legalization. But when it came to the age group typically associated with millennials, support stood at a whopping 78%. Millennials have long had a more favorable view of marijuana, relative to their parents and grandparents, and they've also welcomed high-margin derivative consumption options like oils, edibles, infused beverages, vapes, concentrates, and topicals, with open arms.
Suffice it to say, millennials are the future of the cannabis industry, and their buying habits will go a long way toward dictating what products the North American weed industry will feature.
In addition to partially dictating the direction of the North American pot industry, their investments may also be signaling what marijuana stocks will stand out over the long run.
According to data from Robinhood, an investing app of 6 million users whose average age is 32, four of the top 14 holdings of its users are pot stocks. Courtesy of a top-20 holdings list provided by Robinhood to Investor's Business Daily, these cannabis stocks are:
- Aurora Cannabis (ACB -3.62%): The No. 1 most-held stock on the app.
- Cronos Group (CRON -0.88%): The No. 6 most-held stock.
- Canopy Growth (CGC -5.96%): The No. 11 most-held stock.
- HEXO (HEXO -5.11%): The No. 14 most-held stock.
Why Aurora, Cronos, Canopy, and HEXO are favorites among millennial investors
Why these four names? Well, for starters, they're really visible. All four of these marijuana stocks uplisted from the over-the-counter (OTC) exchange to a major U.S. exchange between late February and late December 2018. Having uplisted, they're now trading far more shares daily than they were on the OTC exchange, and they've received far more coverage from Wall Street, which frequently keeps these companies in the news.
These four pot stocks are also some of Canada's largest projected growers by peak annual production. Aurora Cannabis expects to lead all Canadian growers with at least 662,000 kilos of yearly output when operating fully, followed somewhat closely by Canopy Growth at more than 500,000 kilos a year. A bit further back, HEXO looks to produce at least 150,000 kilos annually following its Newstrike Brands acquisition, while Cronos Group is pegged for 117,500 kilos per year. Respectively, and not including joint venture and royalty company output, this ranks Aurora, Canopy, HEXO, and Cronos as Canada's No. 1, No. 2, No. 6, and No. 9 growers by peak output.
There are also plenty of intangible factors at play. For instance, Aurora Cannabis leads all marijuana stocks with a presence in 24 countries (including Canada). Meanwhile, Canopy Growth and Cronos Group are the two most cash-rich pot stocks of the bunch following respective equity investments from Constellation Brands and Altria. And then there's HEXO, which has quietly landed an assortment of partnerships and joint ventures.
In short, these are standout marijuana stocks that dominate the news feeds, making them easy pickings for millennial investors on Robinhood.
Popular doesn't mean profitable
Then again, it's important to keep in mind that popularity doesn't necessarily equate to profitability. Of the 20 most widely held stocks on Robinhood, many are losing money or are consistent underperformers.
Stepping away from the cannabis landscape for a moment, Fitbit, Tesla, Snap, and Plug Power, are the respective No.'s 7, 9, 12, and 18 on the most-held list. Yet, these are all companies projected to lose money in 2019. Other popularly held stocks, such as General Electric, Ford, and GoPro at No.'s 2, 3, and 8, are making money, but have greatly underperformed the broader market.
Now, back to marijuana stocks. All four -- Aurora, Cronos, Canopy, and HEXO -- are currently losing money, and, with the exception of HEXO, may lose money again in 2020. In fact, a case could be made that millennials have made a very poor decision to anoint Aurora and Cronos as two of their six most widely held stocks.
While Aurora Cannabis has a stranglehold on production and international expansion opportunities, it's also leading the pack in share-based dilution. Since August 2016, Aurora has completed 15 acquisitions, many of which were financed entirely by issuing shares of its common stock, including the $2 billion MedReleaf buyout. As a result, Aurora Cannabis has issued 1 billion shares of its common stock in less than five years, and since the beginning of 2018, despite a near-tripling in the company's market cap, its share price has actually declined.
As for Cronos Group, it looks to be the pound-for-pound priciest pot stock based on a handful of metrics. Aside from snagging $1.8 billion from Altria, Cronos is barely a top-10 producer, and it has only a marginal presence in markets outside of Canada.
With the exception of HEXO, and possibly Canopy Growth, I can't say I'm particularly encouraged by millennials' investing choices in the cannabis industry.