A major federal cannabis reform could be underway: Is it time to stock up on marijuana?
In the quest to change US cannabis laws, the House of Representatives has not been a big deal. The challenge has always come with the US Senate.
Last week, however, Senate Majority Leader Chuck Schumer unveiled a bill to decriminalize marijuana at the federal level that he wants to bring to the Senate. The bill already has the support of Senate Finance Committee Chairman Ron Wyden (D-Ore.).
With the potential for major federal cannabis reform underway, is it time to stock up on marijuana stocks?
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Many potential winners
As you might expect, there are a lot of potential winners if marijuana is decriminalized federally in the United States. Canadian cannabis producers have long wanted to penetrate the huge market south of the border. However, they cannot do so and list their shares on the major US stock exchanges while cannabis remains illegal at the federal level.
If this roadblock is removed, Canopy growth (NASDAQ: CGC) stands out as a particularly likely beneficiary. Canopy already has an option to acquire a US-based cannabis operator Area of assets. It has a major partner (and largest shareholder) based in the United States – Constellation brands. Canopy could be the first to enter the US market if the bill proposed by Senator Schumer becomes law.
Don’t overlook the opportunities for companies currently operating in the United States, however. Cresco Laboratories (OTC: CRLBF), for example, ranks among the most valued multi-state cannabis operators. One of the reasons Cresco shares are cheap compared to most Canadian pot stocks is that the company cannot list its shares on a major US stock exchange.
It’s a similar story for Trulieve Cannabis (OTC: TCNNF), one of the largest cannabis operators in the United States. If Trulieve traded at the same price / sell multiple as Canopy Growth, its market cap would reach $ 10.3 billion, significantly more than its current market cap of $ 6 billion.
The Senate snag
Senator Schumer’s support for federal cannabis reform removes a major obstacle from the past. When the GOP controlled the Senate, former Senate Majority Leader Mitch McConnell would not even have considered introducing a bill for major cannabis reform in the Senate.
However, there is still a big potential problem in the Senate. Any bill before the House can be delayed by a single senator who chooses to use filibuster. As a result, Senator Schumer needs 60 votes to pass his bill. It is not clear that these votes can be garnered at the moment.
The Senate is divided 50-50 between Democrats and Republicans (including two independents who align with the Democrats). This means that 10 GOP votes would be needed to avoid an obstruction if all Democrats and Independents voted as a bloc.
Polls show the American public supports cannabis reform. Thirty-five states have legalized medical and / or recreational marijuana. However, there is no guarantee that a sufficient number of Senators will vote with the views of their constituents on this issue.
Do not back up the truck just yet
With such political uncertainty in the Senate, investors are unlikely to back down and stock up on marijuana stocks just yet. This does not mean, however, that there are no individual actions worthy of close examination.
I’ve mentioned two cannabis stocks before that seem like good choices no matter what happens in Washington, DC Cresco Labs continues to grow in its core markets. He also moved to new states including Florida and Ohio.
Trulieve already dominates the medical cannabis market in Florida. The company is poised for a bigger and better future with its impending acquisition of Harvest Health and leisure.
Another stock that I particularly like is Innovative industrial properties (NYSE: IIPR). The company is a real estate investment trust (REIT) that focuses on the US medical cannabis market. In some ways, the IIP might be better off if federal cannabis reform is not passed. However, even if the proposed legislation manages to garner enough votes for victory, I still believe that the IIP will be able to generate solid growth for years to come.
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Keith Speights owns shares of Innovative Industrial Properties. The Motley Fool owns shares and recommends Constellation Brands, Cresco Labs Inc., Innovative Industrial Properties and Trulieve Cannabis Corp. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.