The U.S. stock market is navigating some turbulent waters so far in 2016, with the Dow Jones average surging one day and then plummeting the next.
That rocky performance has investors jittery – so jittery, in fact, many clients don’t see much hope for a big rebound anytime soon.
Case in point – a Wells Fargo/Gallup Investor and Retirement Optimism Index , reports that 40 percent of U.S. investors view ever-gyrating markets as the “new normal.”
That characterization may not be entirely accurate, as the stock market has certainly gone through long periods of instability before.
According to Ned Davis Research Group, declines of at least 5 percent in the S&P 500 have occurred 165 times since 1961. And since 1900, there have been 35 declines of 10 percent or more in the S&P 500. Of those 35 “corrections,” the index fully recovered its value after an average of about 10 months.”
Splendor In the Grass?
Still, in a period of sustained market volatility, most financial advisor patience and caution. After all, “panic” isn’t much of a long-term investment strategy.
But in those periods, advisors may be looking for new ideas that can generate performance gains in places that others may bypass.
That’s where the new marijuana commodities exchange may be worth a look, especially given a few potentially lucrative trends in the U.S. cannabis market:
- Legalized pot is a $5 billion market in the United States.
- The United States has 20 million marijuana smokers across the nation.
- Marijuana is legal in 23 states for medicinal purchases, and four states have green-lit recreational use of marijuana.
First up is the Amercanex Corp., an electronic cannabis-trading platform that handles sales of about 100 to 150 pounds of weed a week. The exchange is led by Richard Schaeffer, former chairman of the New York Mercantile Exchange, and by Steve Janic, a long-time Wall Street veteran. The exchange currently has 20,000 seats, which originally sold for $2,500 apiece, but now go for $10,000.
But Schaeffer and Janic weren’t first at the table. Earlier this year, Sohum Shah, a 26-year-old University of Arizona college graduate, rolled out the Cannabis Commodities Exchange. That exchange operates only in the state of Colorado (one of the few states where marijuana usage is legal), while Amercanex operates in Colorado and in California, where medical marijuana usage is legal.
A Big Upside
Right now, the trading and exchange of cannabis on regulated exchanges is severely limited, as Uncle Sam does not allow the sale of marijuana across state lines.
But the upside is huge – according to ArcView Market Research and New Frontier, the $5 billion U.S. cannabis market would rise to $36.8 billion if all U.S. states wind up legalizing pot, as many states are already planning to do (California is reportedly next in line.).
That’s the stance a burgeoning number of investors are beginning to take, in what can be described as one of the most original and provocative “ground floor” opportunities in Wall Street history.
“The new cannabis exchange is a good investment opportunity, provided the investment is part of a well diversified portfolio and is sourced from the risk capital portion, no greater than 10 percent of the total,” says Jim Fitzpatrick, an advisory board member at Kodiak Capital Group, LLC in Newport Beach, Calif. (Kodiak has already invested $30 million in Cannabis Publicly Traded Companies since 2011.)
“We’re very familiar with the exchange,” Fitzpatrick says. “Americanex management are experienced subject matter experts delivering necessary transparency and greater regulatory certainty for the logical progression of institutionalizing the emerging cannabis industry.”
Of course, investors can invest directly in cannabis via marijuana stocks (for a good look at the top-traded pot stocks, check out this link. But the appeal of an active, regulated cannabis commodity exchange, still in its infancy, may have appeal for advisors looking to park their clients’ assets in an up-and-coming industry.
Consequently, in an era of “new normal,” marijuana exchanges represent a game-changer for investors – who are looking for any alternative to their portfolios going up in smoke.
Brian O'Connell is a former Wall Street bond trader and author of the best-selling books, such as The 401k Millionaire. He's a regular contributor to major media business platforms. He resides in Doylestown, Pa. Brian may be reached at [email protected]
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