US Political Stirrings Could Boost Cannabis Investments
The cannabis investment proposal has been intrinsically tied to politics since the beginning. Now as the US sets off with new leadership, the industry is looking ahead for what may be in store.
After January’s runoff elections in Georgia, Democrats now have a 50/50 split in the Senate, alongside a majority in the House of Representatives and a sitting president in Joe Biden.
So what’s the state of cannabis policy in the US after critical Democratic wins at all three levels?
Cannabis under a Biden presidency
One cannabis investment expert told the Investing News Network (INN) that the country’s political state sets cannabis up nicely moving forward.
“That’s a huge momentum shift for the cannabis industry because of all of this legislation that the House has passed had been stalled in the Senate,” Matt Carr, chief trends strategist at the Oxford Club, said.
Another expert told INN she still isn’t expecting to see radical improvement at the start of the Biden presidency, despite the new political advantages.
Kacey Morrissey, New Frontier Data’s senior director of industry analytics, said the Senate victory for Democrats will bolster momentum for cannabis in the country, but she expects marijuana policy to take shape in a step-by-step process.
“We think that some major bills would have a hard time passing a divided Senate, and it would be more likely to progress if it’s part of one of those economical bills or a criminal justice reform package,” Morrissey told INN.
Instead of any kind of sweeping national policy affecting cannabis players, or even federal legalization, the data expert sees progress in cannabis policy coming by way of piecemeal steps.
This doesn’t mean cannabis won’t be a discussion point on the political stage.
SLANG Worldwide (CSE:SLNG,OTCQB:SLGWF) CEO Chris Driessen told INN in an emailed statement that he expects to see Democrats introduce “meaningful cannabis policy reform.”
He explained that the provisions of the SAFE Act in particular would be monumental for the cannabis industry by way of possibly eliminating an antagonistic tax code against cannabis.
“(The 280e) tax provision is extremely punitive to cannabis businesses as it only allows minimal deductions for things like (cost of goods sold),” Driessen commented. “This would be a big relief, especially for public cannabis companies.”
Among other benefits, the SAFE Act would grant marijuana operators access to financial instruments taken for granted in other industries, which experts have said could spawn a new age of investment in the space, particularly for US-based companies.
Morrissey said her team is keeping track of the potential entry of institutional investors given the possibility of banking reform in the country. “We think it’ll still be a little while before any proposals get looked at seriously,” the expert said.
Canadian and US markets remain linked
Looking at what could be coming for cannabis companies in the future, Carr explained that at the moment any kind of American political movement still affects Canadian operators, primarily due to their premium status on senior US-based exchanges.
Although they can’t tap into existing US state markets given the federal status of cannabis in the US, Canadian cannabis operators are allowed to list on major exchanges like the New York Stock Exchange and the NASDAQ. US multi-state operators (MSOs) can’t do so due to exchange restrictions.
The expert said those exchanges may feel compelled to change their current limitations if a policy eliminating the criminality of cannabis, such as the MORE Act, goes through.
“Until that happens, those Canadian names are always going to move in tandem with American news, even though it may not impact them directly,” Carr said.
Some Canadian entities are eager to get more involved in the US space when possible. Most famously, Canopy Growth (NYSE:CGC,TSX:WEED) secured a blockbuster deal with MSO Acreage Holdings (CSE:ACRG.A.U,OTCQX:ACRGF) to buy into the US market in the future, alongside other market tactics.
In his most recent quarterly update, Aphria (NASDAQ:APHA,TSX:APHA) CEO Irwin Simon outlined how his company could get an entry into the coveted market.
Simon told BNN Bloomberg he expects his company to be able to buy or merge with an existing US party once legalization becomes clearer in the country. The executive said in his estimation these policy changes have now moved up “by about two years.”
In a market report published on January 11, financial experts at Purpose Investments said the value gap between Canadian and American cannabis companies is created by differences in access to capital markets, as well as regulatory and taxation overhangs and the lack of cross-jurisdictional trade.
The experts behind the document — Greg Taylor, chief investment officer and portfolio manager with Purpose Investments, and Nawan Butt, portfolio manager with Purpose Investments — said the recent political results show a change may be coming.
“We’ve often pondered the timing with which this gap will subside and, with the surprise turning of the US Senate in a late formed ‘blue wave’ in early January, we see this as a near-inevitability of Biden’s presidency,” the Purpose Investments duo said.
Cannabis has been deemed one of the big winners in the latest US presidential election cycle, but it remains to be seen how far along policy can go now that Democrats seem poised to hold the ultimate say in the conversation surrounding the drug.
Investors will have to be prepared for growing questions and policy updates as the Biden administration gets going with its plans.
Don’t forget to follow us @INN_Cannabis for real-time updates!
Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.