Blame Mom and Pop.

That’s the increasingly common refrain from publicly traded cannabis companies and professional investors who have watched stock prices crater over the past several months.

With large institutions still reluctant to invest in pot, Canadian retail investors continue to dominate the public floats of many cannabis companies, especially those that operate in the U.S. where marijuana remains federally illegal.

For example, institutions hold less than one percent of the float of Curaleaf Holdings Inc., the largest American pot company by market value, according to data compiled by Bloomberg. That number is also comparably small for other large U.S. players, including Green Thumb Industries Inc. at three percent and Cresco Labs Inc. at about one percent.

That gives an outsized influence to individual investors.

“The stock price is driven by Canadian retail investors, and that Canadian retail investor is a fickle, ignorant investor that doesn’t really understand what they’re investing in,” said Jeff Mascio, chief executive officer of Cannabis One Holdings Inc., a Denver-based pot company.

Cannabis One’s share price has slumped 96 percent from its high on Apr. 23 to a market value of just $17 million (US$13 million). It recently laid off about 20 employees and found some other efficiencies in order to stop burning through cash, and is now focused on raising money from U.S. investors via a private placement. The company reported revenue of $2.2 million for the quarter ended July 31.

Raising doubts

Mascio said the whole experience made him question whether listing in Canada was worthwhile.

“There was a time when I was like, ‘That was a complete and utter mistake,”’ he said. “We’re having to spend a lot of effort on the Canadian public side that’s not delivering a whole lot of results.”

To be sure, many pot companies haven’t delivered results either, suggesting retail investors unloading their pot stocks aren’t always ignorant. Most have yet to turn a profit, while the black market remains strong in key jurisdictions like Canada and California.

In addition, specific cases have made investors wary of the whole sector. CannTrust Holdings Inc. had its licence suspended and is the subject of a criminal investigation after it breached regulations, while Hexo Corp. last week cut a quarter of its workforce after saying it wouldn’t meet revenue guidance this year or next.

The dominance of retail investors has been an issue even for larger U.S. companies like New York-based Columbia Care Inc., which has lost about two-thirds of its value since April, but still has a market value of over $900 million.

“Until the larger institutional investors in the U.S. begin to look at the sector from a long-term perspective, I think you’re going to see a lot of volatility,” CEO Nicholas Vita said in an interview at the company’s office on Fifth Avenue. “I think you’re also going to see a thematic trend where people are picking baskets rather than picking companies because there’s a lack of information and a lack of time to really sort out the differences between the different operators.”

Private bets

The business case for investing in the burgeoning cannabis industry hasn’t changed, but private companies are currently a better bet, according to Matt Hawkins, founder and managing partner of private equity firm Entourage Effect Capital LLC, formerly known as Cresco Capital Partners.

“The market’s only going to get bigger and smart investors know that,” Hawkins said. “But, unfortunately for the public companies, prices are driven by retail investors who in some cases aren’t savvy enough to be making the buy-sell decisions. They’re losing money that they maybe shouldn’t have been investing in the first place and they’re spooked.”

This means the trajectory of pot stocks could change dramatically when institutional investors begin to buy in, said Vita.

“If the U.S. investing community, particularly the U.S. institutional investing community, decides to lean in, you’re going to see a massive spike in valuations,” he said.