Chuck Schumer on Tuesday highlighted what many following the cannabis trade already knew: Cannabis is a bipartisan issue that will be a pivotal election issue with votes attached to all political supporters.
Cannabis investors also know there are two reasons why leading cannabis companies in the U.S. are outperforming even the manic market moves of Apple and Amazon over the last six months: opportunity and execution.
So, who should be more excited about embracing this generational movement, investors or politicians? And with so much hope around the November election, will the politicians seize the cannabis moment or kill the buzz?
After years of playing second fiddle to Canadian cannabis companies who were able to list on U.S. stock exchanges and raise money from U.S. investors while they could only do this in Canada (or anywhere not in the USA), U.S. cannabis companies have recently stepped to the front of the pack. And after more than two years of promise with no delivery, the cannabis industry is finally delivering profitability.
Second-quarter earnings from the largest U.S. focused companies showed not only robust sequential and year-over-year growth, but free-cash-flow generation and yes, wait for it, EBITDA. Many cannabis companies are bringing earnings dynamics to the party that was previously all about the extraordinary opportunity in legal medical and adult cannabis markets.
As for cannabis politics, the legislative future of the industry will not be won or lost this November in the White House, but rather Congress.
The cannabis industry is not particularly thrilled by the prospect of a second Donald Trump term or a Joe Biden presidency. The current president appointed Jeff Sessions as attorney general, who removed Obama-era protections given to the industry. Biden, meanwhile, has opposed marijuana reform for his entire political career, as both a senator and vice president. Biden's eventual position on cannabis may be coming from his VP running mate, Kamala Harris, who has championed important cannabis legislation (despite a rather harsh stance on the subject as a prosecutor).
Cannabis legislation needs the Senate and the current majority leader is not publicly onboard – despite his state having made significant commitments to hemp/CBD and cannabis.
Before the coronavirus pandemic and election season amplified political turmoil in Washington, it almost seemed like U.S. elected officials were working together on bi-partisan cannabis legislation.
Republicans and Democrats both came together to pass the historic First Step Act, which reduced the amount of time prisoners serve for minor drug related offenses. Lawmakers in the House voted to move the SAFE Banking Act into the Senate (with 91 House Republican votes in favor), where it was expected to pass and finally provide the cannabis industry access to the federal banking system.
Decriminalization and expungement are the core issues Senator Schumer focused on when discussing the future of cannabis legislation and where there is extreme opposition in the Senate. Despite the industry's classification as an essential business during Covid-19, and it's role supporting the U.S. economy during a time of mass layoffs and furloughs, cannabis remains illegal on the federal level.
Because of the federal restrictions, U.S. cannabis companies cannot bank legally, raise money in traditional capital markets, and endure punitive and financially devastating tax laws. The SAFE Banking act is a great first step towards solving the complex banking issues that will lead to much needed reform in the cannabis marketplace, and investors know that banking and tax reform for the sector will equal another massive round of rerating for the sector.
Yet investors must recognize despite the optimism for change in November, D.C. is a slow-moving machine and meaningful and long overdue criminal justice reform is going to take time absent major political change in the Senate. If there is real change, the prospects of the MORE Act and it's long overdue criminal justice reform and expungements could very well become reality.
The most efficient way to achieve major policy victories is through the SAFE Banking Act and STATES Act (the latter of which would prevent federal interference in states where cannabis is already legalized). Both pieces of legislation enjoy bipartisan support: SAFE already passed Congress, while a Republican and Democrat both introduced STATES (Cory Gardner and Elizabeth Warren).
The SAFE Banking Act would provide cannabis a pathway to updated regulatory guidance and allow the industry access to the federal banking system. The STATES Act would essentially deregulate cannabis from the federal level to the state level (where it belongs given that so many states have legalized the substance), unchaining markets and allowing growers, retailers, and patients the ability to access the plant-based medicine with ease. While decriminalization and post-conviction relief are very important measures, we need to use the momentum at our back.
For investors looking to November, it will be up to Congress to determine the future of cannabis. By safeguarding existing state laws on cannabis and providing future access to legitimate financial institutions, lawmakers will lock in progress and pave the way for full legalization and a more sensible justice system. When that legislation is ultimately combined with the operational execution/profitability we are currently seeing by top companies in the sector (see Curaleaf, Cresco Labs, Trulieve, GTI, Terrascend), the next wave of rerating will be here.
Is it time to invest in that future now? Markets don't ring the dinner bell and often reward those who sit at the table early for major secular investment themes.
Are you sitting down yet?
Tim Seymour is a CNBC contributor and trader on CNBC's "Fast Money" and senior advisor to the JW Asset Management Cannabis Growth Fund, portfolio manager of the Amplify Seymour Cannabis ETF, Ticker CNBS, Follow him on Twitter @timseymour
Brady Cobb is the CEO of Bluma Wellness-One Plant.
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