Cannabis stocks received a much needed bump this week on news that a congressional committee approved a bill to end federal marijuana prohibition – for the first time in history.
“The vote was mostly symbolic and is just the first step toward full legalization,” says Jason Wilson, banking and cannabis expert at ETFMG Alternative Harvest (MJ). “But legalization will come eventually and there’s still a lot of money on the sidelines looking to get into the space.”
CFRA analyst Garrett Nelson also weighed in: “We think the bill is likely to also be approved by the full House. At best, we think the proposed legislation is likely to be slow-tracked in the Senate with numerous revisions given the majority leader’s opposition to legalization, but it is also possible that it goes nowhere.
“Nevertheless, the development is a positive for sentiment toward heavily-shorted cannabis equities, which have been battered by Canadian market oversaturation, as investors shift focus toward opportunity in the U.S., the world’s largest cannabis market (one-third of global demand).”
The House Judiciary Committee voted 24-10 to remove marijuana from a schedule of controlled substances by passing the Marijuana Opportunity, Reinvestment and Expungement (MORE). This sets the stage for a full floor vote.
The legislation would federally deschedule marijuana, expunge criminal records for those with prior marijuana convictions, and impose a five percent tax on sales (revenue from which is earmarked for communities most impacted by the drug war).
The bill would also create a pathway for resentencing for those incarcerated on cannabis offenses, as well as protecting immigrants from being denied citizenship because of cannabis. It will also prevent federal agencies from denying public benefits or security clearance based on cannabis consumption.
“These steps are long overdue. For far too long we’ve treated marijuana as a criminal justice problem instead of a matter of personal choice and public health,” said Chairman Jerrold Nadler (D-NY), who introduced the bill. “Arresting, prosecuting and incarcerating people at the federal level is unwise and unjust.”
“I’ve long believed that the criminalization of marijuana has been a mistake,” he said. “The racially disparate enforcement of marijuana laws has only compounded this mistake with serious consequences, particularly for minority communities.”
Welcome news for investors in the Canadian market
The news came as a welcome surprise to investors who’ve been disappointed by the slower-than-expected rollout of the Canadian legal market and continued disappointing company earnings.
For the past year, all eyes have been on the Canadian market to drive profitability in the nascent legal cannabis market. But after the industry failed spectacularly to deliver earnings that so many investors had hoped for… the U.S. market is offering a beacon of hope.
“People were investing in companies with a fully funded business plan, but no particular expertise with cannabis and there was no real infrastructure. All of that had to be created,” said Wilson.
The analyst went on to say that the lack of support from institutional investors is further hurting the cannabis sector. He predicts that the next phase will involve consolidation as weaker players drop out or are bought out in fire sales.
Cash burn and cost cutting are affecting all major cannabis players across the board. “But companies that are well-capitalized, that have real assets and international operations will survive,” said Wilson.
The ETFMG Alternative Harvest ETF (MJ) was trading at $17.68 per share on Friday afternoon, down $0.90 (-4.84%). Year-to-date, MJ has declined -45.64%, versus a 16.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Eric Bowler
Eric Bowler is an accomplished journalist providing in-depth insights for more than two decades. Over the past several years his focus has been on the marijuana industry, with a special interest in cannabis growth stocks. His daily coverage of the industry keeps him on top of the key trends with the goal of helping investors make well-informed decisions.