Millennials: Here’s Why You Shouldn’t Gamble on Marijuana Stocks

While you might be tempted to gamble on weed stocks like CannTrust Holdings Inc (TSX:TRST)(NYSE:CTST), it’s not a good idea

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Marijuana stocks are extremely popular with millennials. That’s the inference of data from the millennial-dominated trading app Robinhood, which recently revealed that marijuana stocks made up two of the nine most popular stocks on its platform.

Two out of nine is 22%, making marijuana stocks much more widely owned on Robinhood than in the markets overall. Robinhood does not represent all millennial investors, but as an app with mostly millennial users, there is strong overlap between its user base and that age cohort.

Unfortunately for millennials, marijuana stocks are tanking this year. Aurora Cannabis, the most popular stock on Robinhood, is down 5% to date, and other marijuana stocks, like CannTrust Holdings Inc (TSX:TRST)(NYSE:CTST) are down as much as 75%.

Although you could have made money by buying marijuana stocks early, you’d have lost money by buying even the best-performing marijuana stocks this year.

If you’re a millennial investor, you may find yourself swayed by the hype surrounding weed stocks. If you feel that’s the case, it’s best to resist the urge to take the dive. Here’s why:

They’re extremely volatile

Beta is a measure of the volatility of a stock; that is, how dramatically it swings up and down compared to the market as a whole. The higher a stock’s beta coefficient, the bumpier your ride will be–and marijuana stocks are nothing if not volatile.

Over the past three years, CannTrust Holdings has had a beta coefficient of 4.62, meaning it’s more than four times as volatile as the market. Put simply, if you buy TRST, you’re going to have a bumpy ride–and if present trends continue, you’ll mostly lose money in the long run.

The fact that marijuana stocks are trending downward is alarming in itself. However, even if you buy a weed stock that’s a long-term winner, you could easily lose money by panic selling on downswings.

The psychology of panic selling

Loss aversion refers to the tendency of people to fear losses more than they desire gains. It’s the psychological principle underlying the phenomenon of panic selling, whereby investors sell on downswings even if their long term prospects are good.

Studies show that people are about twice as averse to losses as they are keen for gains. In other words, not losing $10 is better than getting $10.

The psychology of panic selling is something all investors have to keep in mind. But with marijuana stocks, it’s particularly important to be wary of–and probably a reason to avoid the asset class altogether.

As a case in point, we can look at Aphria Inc. Unlike CannTrust, Aphria is not overwhelmingly bearish right now. After a surprise earnings report that showed operating profits and a 969% year-over-year revenue growth rate, it has traded mostly flat.

However, even with a better long-term trend than CannTrust, it’s still not safe for those susceptible to loss aversion. With a beta coefficient of 3.7,  it’s nearly as volatile as CannTrust, which means it sees plenty of dramatic swings that could trigger panic selling.

This is a problem because even if the stock rises over the long term, it has the potential to trigger psychology that could cost you money.

Just Released! 5 Stocks Under $50 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $50 a share.

Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.

Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Cannabis Stocks

Cannabis business and marijuana industry concept as the shadow of a dollar sign on a group of leaves
Stocks for Beginners

Buy the Dip Before It’s Too Late: This Canadian Stock Won’t Stay Cheap Forever

Investors might think that cannabis stocks are out, but this one could be the top Canadian stock to consider.

Read more »

a person watches a downward arrow crash through the floor
Stocks for Beginners

Plummet Alert: Is This TSX Growth Stock a Bargain or a Falling Knife?

This growth stock was once a major winner, but can investors wait for more?

Read more »

Medicinal research is conducted on cannabis.
Cannabis Stocks

What to Know About Canadian Cannabis Stocks for 2025

Let's dive into two top Canadian cannabis stocks and where they may be headed from here (given the recent moves…

Read more »

Researcher works in hemp field
Cannabis Stocks

Aurora Cannabis Stock Is up 46% in 2025: Are Investors Going From 5 Years of Pain to a 2025 Gain?

Shares of Aurora Cannabis have staged a comeback in 2025, outpacing the broader markets comfortably. Is ACB stock a good…

Read more »

A plant grows from coins.
Stocks for Beginners

3 Growth Stocks That Could Skyrocket in 2025 and Beyond

It could be a big year for these sectors, and these growth stocks in particular throughout 2025.

Read more »

money goes up and down in balance
Tech Stocks

2 TSX Stocks to Buy and 2 to Avoid in the Looming Trade War

The looming U.S.-Canada trade war has changed the business environment. Here are some TSX stocks to buy and avoid in…

Read more »

space ship model takes off
Cannabis Stocks

2 Canadian Stocks With Strong Momentum for 2025

Celestica Inc. (TSX:CLS) stock and Dollarama (TSX:DOL) stock have sustained strong price growth momentum for a long time.  Here’s why…

Read more »

Worker tags plants at an industrial cannabis operation
Cannabis Stocks

Pot Stocks: Buy, Sell, or Hold in 2025?

Cannabis stocks remain a bit risky, but could long-term investors be in for more pain or far more profits?

Read more »