Why jumping exchanges leads to more institutional money … and how getting in ahead of it can make small investors big returns
It’s official — OrganiGram has been called up to the Majors.
Just as our own Matt McCall predicted, this past Tuesday, OrganiGram kicked off trading on the Nasdaq, making it the latest Canadian cannabis company to list on a major U.S. exchange.
This is a big deal — for the evolution of the marijuana industry, for Organigram, and especially for marijuana investors.
You see, on an industry level, this exchange-jump is further evidence that the marijuana industry — which is one of the biggest investment trends we’ll see in our lifetime — is legitimizing, expanding, and evolving into a major investment sector that’s capable of generating massive wealth.
On the company-specific level, Organigram’s exchange-jump sets the stage for a huge influx of new investment dollars to drive its stock price over the coming quarters.
In both cases, it’s great news for marijuana investors.
So, in this Digest, let’s do a deeper dive into what just happened, and walk through its significance. It’s never been a more exciting time to be a marijuana investor.
***The marijuana industry is entering its next phase of legitimacy, setting the stage for huge growth
You might be surprised by this comparison, but there are some similarities between the evolving marijuana industry and Maslow’s hierarchy of needs.
For those unaware, Maslow was a psychologist who proposed the idea that humans have different levels of needs, and we tend to fulfill these needs in a loose chronological order of importance — from most basic to most evolved. For instance, we wouldn’t seek to fulfill goals related to enhancing our self-esteem if we were starving or drowning. The most basic needs must be met before we can evolve and tackle more advanced needs.
Over the last few years, the marijuana industry as a whole has been operating at a “basic needs” level. After all, the product has been illegal … the market has been highly decentralized and fragmented … and the majority of companies have focused most of their efforts on trying to secure funding for basic survival first, followed by some capacity expansion …
It’s been a bit like the ‘ole Wild West. Sort of an economic survival-of-the fittest.
That’s now changing as the market has established traction. Legislative reform, corporate mergers of some larger marijuana companies, and the evolution of the U.S. investment market is pushing the marijuana industry up its hierarchy of needs …
It’s not just about survival anymore, it’s now about growth … And growth leads to market leadership, which leads to greater profitability, which leads to investment wealth for you and me.
Backing up to “growth” — what’s one of the major ways that marijuana companies grow?
By coming to the U.S. market and tapping into its enormous pool of institutional-grade dollars — in other words, “jumping exchanges,” like what OrganiGram did on Tuesday.
You see, right now, similar to the rest of the marijuana industry, OrganiGram’s investor base is mostly retail investors — not institutional investors that usually buy larger blocks of stocks. According to FactSet, funds only own slightly more than 11% of OrganiGram shares. Compare that to the average stock in the S&P 500, which, on average, has about 88% ownership by funds.
***This means there’s tremendous room for institutional investors to take bigger stakes now that OrganiGram trades on the Nasdaq
Matt McCall is our resident marijuana expert. In his newsletter, Early Stage Investor, he recommends smaller, potentially-explosive marijuana stocks, some of which are making this exchange jump.
Here’s Matt on why exchange jumps set the stage for more institutional dollars:
Nearly every mutual fund, ETF, and big institutional investment advisor is prohibited from buying stocks that do not trade on the NYSE or NASDAQ. After jumping to a major exchange, the stock can be purchased by the largest funds in the world …
Money from large institutional funds, pension funds, and the like will also add to the inflow of cash into marijuana stocks listed on the NYSE and NASDAQ.
With money from large financial institutions comes the initiation of coverage by the big investment banks …
A byproduct of more analyst coverage is increased press. When a new investment firm initiates coverage of a stock, it puts out a press release. That leads to more media attention and competitors also launching coverage of the Jumper Stock, which in turn sparks more buying. Wall Street is famous for keeping up with the Joneses — which in turn sparks more buying
OrganiGram’s own CEO, Greg Engel, spoke to this institutional investment idea on Tuesday. He said “(Moving to the U.S. exchange) diversifies your investor base over time, and I think we’ve seen huge demand from much larger traditional funds that want to invest that can’t invest when you are an OTC stock.”
***For small investors like you and me, one of the keys to maximizing our returns is to be invested before the institutional dollars flow in — which often means being invested before the exchange jump
Matt recently wrote on this point to his Early Stage Investor subscribers, using Cronos as an example:
On February 27, 2018, (Cronos) jumped to the NASDAQ and made history as the first Canadian marijuana company to list on a major U.S. exchange. Cronos closed the Friday before the announcement at $7.01. One week after the announcement, it traded as high as $10.39 — a rally of nearly 50%.
On May 23, 2018, Cronos made another jump in Canada when it moved from the TSX Venture Exchange to the Toronto Stock Exchange (TSX). Two weeks later, the stock was up 28%. (Note: Most Canadian marijuana companies begin their public lives on the TSX Venture Exchange. The jump from there to the TSX is the equivalent of uplisting from the OTC to the NYSE in the United States.)
As you can see in the chart above, both jumps resulted in big short-term profits. These short-term gains are impressive. Butthe long-term benefits of uplisting to a major stock exchange are what my Jumper Stock System is based on. Fourteen months after my initial recommendation, Cronos is trading at $22.20 — an increase of 300%.
***So, any short-term market gains from an exchange jump are great, but the real benefit is seen over a longer period
In this way, you might think of the exchange jump as the starting gun. That means being invested at this time can make a significant difference in your long-term returns.
Here’s Matt on this point, relating specifically to OrganiGram — which he’s had in his Early Stage Investor portfolio since late March:
The shares are up slightly since the jump, but this is only the beginning of this company’s huge upside … This company has so much potential beyond yesterday’s jump. As more and more eyes are on it, I am confident we’ll see much higher share prices in the coming months and years.
OrganiGram is above Matt’s suggested buy-up-to price. However, he holds several other small marijuana companies in his Early Stage Investor portfolio which he believes could be the next to announce an exchange jump. If you’re looking to get in before the institutions, this is your chance.
The marijuana investment market is no longer in its chaotic Wild West days. It’s evolving and beginning to take shape, setting the stage for long-term investment wealth. As to which companies will drive that wealth, it’s unclear, but each marijuana company that makes the leap to the U.S. exchanges stands to be one of tomorrow’s market leaders. It’s going to be fun to watch.
We’ll continue to monitor this, as well as all the other major investment trends affecting your portfolio, here in the Digest.
Have a good evening,