Cannabis Stocks Surge As Congress Eyes Reform

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Promising developments on Capitol Hill have cannabis stocks surging after a tough year and might be just the encouragement beleaguered investors need to regain confidence in the fledgling cannabis industry. While federal legalization remains elusive, there are signs that some major reforms are on the way – and that could be a big deal for legal cannabis businesses.

What’s happening on Capitol Hill?

Senate Majority Leader Chuck Schumer (D-NY) announced that bipartisan efforts to enhance the Secure And Fair Enforcement (SAFE) Banking Act are underway and that he expects to soon introduce a bill with the votes to pass it through Congress. The SAFE Banking Act is designed to codify protections for financial institutions that bank and lend to state-legal cannabis businesses, and Schumer said the enhanced version of the bill would also include measures like automatic expungement for people convicted on cannabis charges.

"I am working in a bipartisan way with Democrats and Republicans to take the SAFE Banking Act, which allows financial institutions to involve themselves in cannabis companies and lend money to them—but it also does some things for justice, such as expunging a record,” Schumer reportedly said. “We may be able to get something done rather soon. I’m working with a bunch of Republican senators, a bunch of Democratic senators, to get something passed.”

The original version of the SAFE Banking Act has been introduced in several sessions of Congress, passing in the House of Representatives multiple times but never in the Senate. If Schumer’s “SAFE Plus” bill passes both chambers – something he said Congress is “very close” to achieving – and President Joe Biden signs it, it would represent a high watermark for cannabis reform in Washington, D.C.

What effect would SAFE Plus have on the cannabis industry?

Like the SAFE Banking Act, Schumer’s SAFE Plus would reportedly include guarantees that financial institutions working with cannabis businesses that are compliant with their states’ laws would not be subject to federal enforcement actions despite the ongoing federal prohibition of cannabis. This includes protecting their FDIC status, a concern that prevents many banks from working with legal cannabis businesses today. 

If adopted, the legislation would likely give bankers the assurance they need to work with cannabis businesses, allowing them to open accounts, take loans, and process payments. Currently, these financial services can be hard for cannabis businesses to access, and even those that do are subject to sudden revocation should a bank’s policies change. 

In addition, SAFE Plus would expunge the arrest and conviction records of people who were convicted of federal cannabis charges. The bill would not, however, federally legalize cannabis — that would be the aim of separate legislation, such as the Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act.

How cannabis stocks have responded

Major cannabis businesses including Canopy Growth (CGC), Tilray (TLRY), and Aurora Cannabis (ACB) saw significant spikes to their stock value immediately following the news that Schumer plans to introduce SAFE Plus and believes Congress has the votes needed to pass it. These large businesses are often seen as a bellwether for the potential of the rest of the industry, especially since publicly-traded cannabis companies are less common than businesses in mainstream industries.

The gains seemed to be reflected across the whole industry as well. The New Cannabis Ventures Global Cannabis Index saw an immediate increase of more than 5%, a rare positive trend since it began a long, slow decline after peaking in February 2021. Similarly, the American Operators Index, which measures the collective performance of plant-touching cannabis companies, saw an increase of more than 8%. 

And despite the sluggish year for cannabis investors, the future value of the industry remains bright, especially if Congress enacts key reforms. According to Fortune Business Insights, the global cannabis industry will grow to be a projected $197.74 billion by 2028. The U.S. is one of the largest markets for cannabis in the world already and contributes about $26.5 billion in value already, according to Equio by New Frontier Data. 

Today, medical cannabis is legal in 39 states plus Washington, D.C. and adult-use cannabis is only legal in 19 states plus Washington, D.C. As new legal markets open up and existing markets mature, the cannabis industry will be in a better position to drive value for investors and entrepreneurs.

Congressional buy-in is key to the cannabis industry's value

The cannabis industry has had a tough year when it comes to public investing, and the restrictions on banking and financial services remain a key challenge. However, if Congress passes SAFE Plus, it will be a strong step in the direction of reform that, although federal cannabis prohibition remains, will allow state-legal cannabis businesses to operate more smoothly. For investors, that’s a big sign that Washington, D.C. is more committed than ever to cannabis reform and, hopefully, will unlock the door to more research and development of cannabis products, from adult-use recreational to biotech and pharmaceutical.

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Cannabis Stock Buyer 2 months ago Member's comment

How do you define "surge?