Cannabis industry not counting on congressional help until 2022

While Congress is one day expected to lift the federal cannabis ban, Capitol Hill remains too busy with other issues in the current fall session to address the issue, industry observers said this week. marijuana.

Questions about the upcoming catalysts for Washington, DC’s cannabis industry have been frequent in recent conversations with investors, but with other things like infrastructure, healthcare, and the potential tax hike in the making. debate, lawmakers are unlikely to act on federal measures in the near future.

“The prospects for action on federal cannabis bills to be passed in the fall appear to have faded,” Alliance Global Partners analyst Aaron Gray said in a research note on Wednesday.

The next six months could still offer a window of action in early 2022 before attention turns to the midterm elections later next year, Gray said.

See also: Poppy and Poppy Paintings: Inside the Van Gogh ‘Immersive’ Exhibition of a Cannabis Lifestyle Company

The extra time it takes Congress to act will help ancillary cannabis companies such as Greenlane Holdings Inc. GNLN,
+ 1.52%
and GrowGeneration GRWG,
increase their market share before increased competition that would follow federal legalization, he said. Gray rates both stocks and said valuations of multi-state operators have been more favorable in recent months.

In terms of potential legislation, three camps have emerged in Congress.
Some Democrats want a more comprehensive solution like the Cannabis Administration and Opportunity Act, written by Democratic Senators Cory Booker, Ron Wyden and Chuck Schumer. The bill would seek to correct the damage caused by the war on drugs in minority communities and to address other issues of social impact.

See also: Schumer and other Democrats unveil bill to decriminalize cannabis

Others support the narrower SAFE Banking Act that would open up the federal banking system to the cannabis industry and allow businesses to work with banks without fear of federal enforcement. The measure has drawn support from both sides of the aisle and was passed by the House of Representatives in April, but has yet to progress in the Senate. And a third faction disagrees with either measure and believes cannabis should remain a banned Schedule I drug, which classifies it with heroin.

Meanwhile, the business continues to expand into New York, New Jersey, Illinois, Michigan, and other states that have legalized or legalized cannabis for medical or recreational purposes. of them.

See now: Canadian cannabis companies still not profitable nearly three years after full legalization began, results show

“As more and more states continue to change their laws, the pressure on Congress will increase,” Satish M. Kini, partner at Debevoise & Plimpton who works in the banking industry, told MarketWatch. “For now, we are still at this impasse. “

In the absence of a new congressional law, banking services for the cannabis industry have gradually grown in line with guidelines established under the Obama administration, but they have not been widely adopted.

“Some small institutions [such as community banks and credit unions] understood that and decided to do business with marijuana companies, ”Kini said. “Most of our clients – the larger institutions – have determined that if there was no clearer legal solution, it was difficult to do this deal. “

Read also: Canadian cannabis company Hexo unveils third and biggest contract of the year to date

However, banks have been more receptive to dealing with secondary cannabis companies that do not directly affect the plant. They may deal with an REIT investing in land used for dispensaries or used by producers. An example is the REIT Innovative Industrial Properties IIPR listed cannabis,

“We have seen a greater receptiveness to working with these companies,” Kini said. “The big banks continue to wonder how close they want to get to this business given the federal ban and their own risk appetite.”

Also: Cannabis Company TerrAscend Moves to Michigan with $ 545 Million Acquisition of Gage Growth

Meanwhile, investor interest in cannabis remains strong as people believe the federal ban will eventually be lifted and federal criminal law changed. Some believe that first-to-market companies and service providers will have a competitive advantage

But the big Wall Street banks remain reluctant to provide loans or financial services directly to U.S. companies that touch the plant.

“Most of the major banking institutions remain conservative and cautious on this front,” Kini said. “It will be for a while.”

Sector stocks, which rebounded at the start of the year amid enthusiasm for possible reforms, have since abandoned most of their gains. As shown in the graph, ETF Cannabis THCX,
which includes the major licensed Canadian players, has gained 7.8% over the year to date, while the AdvisorShares Pure US Cannabis ETF MSOS,
fell by 15%. The S&P 500 SPX,
gained 18.3%.

FactSet, MarketWatch

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