Even with the uncertainty surrounding the odds of federal marijuana legalization, that doesn’t mean cannabis isn’t a worthy investment.
Leading investment analysts predict that cannabis stocks will soar big time following last week’s Democratic takeover of the U.S. Senate. The idea is that since the Democrats have now secured the majority in both Congressional houses, federal marijuana legalization is a sure thing within the next two years.
In their minds, it’s not if it’ll happen, it’s when, and they are urging investors to go all in.
“We’re still working through the models because we don’t have visibility around the timing of [legislation], but we would anticipate either the back half of ’21 or the first half of ’22,” Cowen Managing Director Vivien Azer told Yahoo Finance. “But what we have asserted is we think there could be as much as 50% upside to the revenue multiples for the U.S. operators strictly by virtue of re-listing to the U.S. exchanges.”
Democrats won control of the U.S. Senate last week following Georgia’s runoff election when Jon Ossoff and Raphael Warnock beat Republican Senators David Perdue and Kelly Loeffler. This provided Democrats with the two seats necessary to flip Senate control. At face value, it should now be easier for Congress to pass a marijuana legalization bill.
The Democrats have been pushing for pot reform over the past few years (SAFE Banking Act, MORE Act) only to be stopped by Republican rule in the upper chamber. Now that the Democratic agenda can move forward in the Senate, there should be nothing — certainly no Mitch McConnell — standing in the way of a vote.
But it’s the probability of that vote which some analysts argue investors need to worry about. Sure, Democrats have the majority in the Senate, but it’s only a slim one. It’s a 50-50 setup, with Vice-President-elect Kamala Harris being the tiebreaker. Democrats will have to rely on their ability to attract Republican supporters to get any marijuana-related legislation pushed through.
And that won’t be easy.
“Investors in cannabis producers, including Tilray (TLRY), Canopy Growth (CGC), and Aurora Cannabis (ACB), are likely overestimating the odds for federal decriminalization and descheduling along the lines of the Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act that passed last month in the House,” Beacon Policy Advisors analyst Charlotte Jenkins says.
“Passage of the MORE Act [bill designed to legalize marijuana at the federal level] is unlikely even in a Democratic-controlled Senate because there is likely not enough Republican support to reach the requisite 60 votes to pass the MORE Act or [incoming Senate Majority leader Chuck] Schumer’s similar legislation.”
Even with the uncertainty surrounding the odds of federal marijuana legalization, that doesn’t mean cannabis isn’t a worthy investment. All of the states with marijuana legalization ballot measures in the 2020 election passed with overwhelming support. This alone suggests that the cannabis industry will continue to grow over the next few years.
The situation is destined to get even better, as more states follow suit. And that’s bound to happen one way or another. New York Governor Andrew Cuomo is again pushing for lawmakers to approve legislation to establish a taxed and regulated system. Therefore, some of the largest cannabis markets in the United States are yet to come.