Optimism abounds in the cannabis sector because the U.S. House of Representatives is poised to vote on the potential legalization of marijuana in the coming days. Importantly, this vote relates to the legalization of cannabis at the federal level.
As most are well aware, many states in the union have already legalized cannabis at the state level. To date, roughly 37 states, and the District of Columbia, have legalized cannabis for medicinal use, while 18 of those have also legalized it for recreational use.
That state-level progress is largely attributable to grassroots political action. And it’s the momentum built from those efforts that now appears to be forcing action at the federal level.
A change in federal law is important because cannabis is still technically classified as an illicit drug under the Controlled Substances Act. That classification makes life extremely difficult for the cannabis industry—even for businesses operating in states that have legalized its use.
One of the biggest complications from this complex arrangement (legal at the state level, but illegal at the federal level) is the industry’s inability to tap the national banking system.
That inaccessibility means that cannabis-facing companies have to do things like deal 100% in cash, as opposed to offering payment via credit/debit cards. In turn, that makes normal daily operations such as employee payroll and inventory purchases a lot more complicated.
Dealing 100% in cash also represents a significant security risk, which means that cannabis-focused businesses also pay exorbitant prices for insurance.
The legislation scheduled for a vote this week in the U.S. House of Representatives would legalize cannabis at the federal level because it would remove marijuana from the list of “Schedule 1” illicit drugs.
The bill is known as the Marijuana Opportunity, Reinvestment and Expungement Act, or MORE Act.
Importantly, however, passage of the act by the House would represent only the first step in the legislative process. The bill would also need to be approved by the U.S. Senate, and then signed into law by the President.
Unfortunately, most projections suggest this bill does not have the votes necessary to overcome the Senate filibuster (aka the Senate “cloture rule”).
The Senate only requires a simple majority (51 votes) to actually pass a bill after debate has ended. But, since it takes 60 votes to close debate, that threshold—known as the filibuster—is considered the effective requirement for passing bills.
In short, that means a bipartisan group of 60 politicians from both sides of the aisle will need to come together in support of the MORE Act. And that’s not expected to happen—at least not in the foreseeable future.
Similar legislation passed the House in December of 2020, and that package never even reached the floor of the Senate for open discussion, much less for a vote.
Considering the above, current optimism regarding legalization at the federal level is likely overdone. But for the cannabis industry, there still may be a ray of hope.
In February, the House also passed a measure known as the Secure and Fair Enforcement Banking Act (aka the SAFE Act) as part of the larger America Competes 2022 bill.
Enactment of the SAFE Act wouldn’t make cannabis legal at the federal level, but it would open the federally-regulated banking system to any business operation that’s licensed under state law—including cannabis-orientated businesses.
Passage of the SAFE Act would therefore represent a big step forward in the legalization direction. And likely be perceived as a stepping stone toward the broader MORE Act.
So while the upcoming vote in the House may be more of a symbolic gesture, there are real reasons for optimism in this niche of the financial markets. Optimism that has recently spilled over into the financial markets.
Since March 24, shares in the well-known cannabis company Tilray Brands (TLRY) are up more than 40%. Likewise, shares in the cannabis-focused Alternative Harvest ETF (MJ) have risen roughly 30% since mid-March.
This week, it’s expected that the House Rules committee will take up the MORE Act legislation on March 30. If released by the committee, it would be added to the House calendar, and then voted on, debated or amended. If the bill passes by simple majority (218 of 435), it then moves on to the Senate.
To track and trade ongoing developments in the cannabis sector, investors and traders may want to add the following symbols to their watchlists:
- Acreage Holdings (ACRHF)
- Alternative Harvest ETF (MJ)
- Aurora Cannabis (ACB)
- Ayr Wellness (AYRWF)
- Canopy Growth (CGC)
- Amplify Seymour Cannabis ETF (CNBS)
- Cronos (CRON)
- Green Thumb Industries (GTBIF)
- AdvisorShares Pure US Cannabis ETF (MSOS)
- OrganiGram Holdings (OGI)
- Global X Cannabis ETF (POTX)
- Sundial Growers (SNDL)
- Tilray Brands (TLRY)
- Trulieve Cannabis (TCNNF)
- Verano Holdings (VRNOF)
- AdvisorShares Pure Cannabis ETF (YOLO)
For more background on the cannabis trade, readers can review this installment of Small Stakes on the tastytrade financial network.
Updates on everything moving the markets are also available via TASTYTRADE LIVE, weekdays from 7 a.m. to 4 p.m. Central Time.
Sage Anderson is a pseudonym. He’s an experienced trader of equity derivatives and has managed volatility-based portfolios as a former prop trading firm employee. He’s not an employee of Luckbox, tastytrade or any affiliated companies. Readers can direct questions about this blog or other trading-related subjects, to email@example.com.