Over the past several years, the political landscape has been fractured.
Americans are hotly divided on a broad range of issues, and the chasm between parties is the widest it’s been in quite some time.
But there are still some things that both factions largely agree on.
One of these issues is creating a buzz in the market at the moment. It’s breathing some life back into a badly beaten sector… and it all has to do with the first buddings of a possible agreement across the aisle.
2021’s Lonesome Bear
Shares of cannabis companies have been in the toilet since their highs in February.
The AdvisorShares Pure US Cannabis ETF (NYSE: MSOS) is currently down 45.5% from its 52-week high, underperforming the S&P 500 Index by a considerable margin.
And many cannabis company shares recently set new 52-week lows.
For months, it appeared as though there was no plunger strong enough to free them from their messy free fall.
The U.S. House of Representatives passed the Marijuana Opportunity, Reinvestment and Expungement (MORE) Act as well as the Secure and Fair Enforcement (SAFE) Banking Act… again.
I’ve quipped that the SAFE Banking Act will go down in history as the most passed pro-cannabis measure of all time. It’s been moved forward by the House of Representatives five times since 2019.
But these passages did nothing to jump-start momentum.
The harsh reality is that the likelihood of either bill passing in the Senate is essentially nil.
That is a shame because a recent Gallup poll found that 68% of Americans support the legalization of cannabis.
That makes cannabis more popular than President Biden and former President Trump!
In fact, in my home state of Maryland, cannabis legalization has more support than President Biden and our two senators, Sen. Chris Van Hollen and Sen. Ben Cardin.
Now, cannabis shares have skyrocketed over the past two sessions.
Since hitting a 52-week low of $25.70 on November 4, the AdvisorShares Pure US Cannabis ETF has shot about 12% higher.
And it all has to do with rumors of potential bipartisan support.
A Bipartisan Compromise?
Over the past few years, we’ve spent a lot of time covering the MORE Act, the SAFE Banking Act and even the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act.
These made headlines but did not gain much traction in the trenches of Washington, D.C., as support tends to fall along party lines.
But South Carolina Rep. Nancy Mace is creating a potential compromise. Her 116-page draft of the States Reform Act is still in a preliminary phase, but it’s garnering cross-aisle support.
The proposed legislation would deschedule cannabis from the Controlled Substances Act, treating it similarly to alcohol.
It also would put the Department of the Treasury’s Alcohol and Tobacco Tax and Trade Bureau as the chief overseer of interstate commerce. The U.S. Food and Drug Administration (FDA) would have limited authority over cannabis oversight, except in terms of medical cannabis.
But the FDA couldn’t ban or prevent the use of products. And raw cannabis would be considered an agricultural commodity and would be regulated by the U.S. Department of Agriculture.
Cannabis sales would be hit with a 3.75% excise tax. Other provisions would grandfather in state-licensed operators, expunge nonviolent cannabis convictions and set an adult-use age limit of 21, among other things.
All in all, Mace’s States Reform Act is seen as a marriage between the descheduling and states’ rights approach that Republicans have tended to favor and the broader social justice reform bills that Democrats have been trying to forward.
Investors are cheering these first signs of actual compromise in what’s largely been a dysfunctional capital.
But the big question that remains is this: Does that make cannabis shares a “Buy”?
No Short Game Here
“Don’t get your hopes up.”
That’s what I told investors when the House Judiciary Committee recently passed the MORE Act and the House tucked the SAFE Banking Act into its version of the defense spending bill.
The Senate is a chasm that cannabis legislation can’t seem to find its way across, let alone make it to the floor for a vote.
But I did say that these recent passages keep the end of cannabis prohibition in the conversation, which will ultimately lead us forward.
Mace’s draft of the States Reform Act is the first of these steps. She hopes to introduce it later this month.
However, I’m not sure it’s going to get enough support to clear all of the hurdles that it needs to.
There are plenty of people on Twitter (NYSE: TWTR), Meta Platforms’ (Nasdaq: FB) Facebook and other social media platforms exclaiming that the next cannabis bull market is here because of the upswing in shares and the hopes for this bill.
I believe cannabis prohibition will come to an end. But as I’ve stressed – and have learned in my many years of covering the industry – it’s going to take a lot longer than we want to believe.
Support for cannabis legalization is stronger than support for President Biden and former President Trump. But the gears of democracy can lag the will of the people. And this appears to be one of those issues.
So stick with the approach that I’ve repeated again and again: Cannabis is a five-to-10-year “Hold.”
Buy the dips, and play the long game. Because, ultimately, change is going to come.
Here’s to high returns,
Matthew
P.S. To access my library of interviews with cannabis company CEOs and executives, click here.
