While meme coins continue to dominate most crypto discussions–to such an extent that I think utility coins are now “contrarian” plays in the crypto space–I wanted to discuss a different sector that will be affected by the November 5th Presidential election: cannabis.
Let me start with some context. First up, most of the US (about 60%) think that cannabis should be legalized (not merely decriminalized) for both medical and recreational purposes (source). That number jumps to 88% if only medical use is at stake. There is thus broad support for cannabis reform.
Next, it’s helpful to recall that cannabis stocks and ETFs are quite differently positioned to benefit from new legislation. There are, roughly, three different camps:
-
US Based Offerings: $MSOS, $CURL, $GTBIF, $CRLBF, $VRNOF, $AYRWF, $JUSHF, $MRMD
-
Non-US Based Offerings: $CGC, $TLRY, $SNDL, $CRON, $OGI, $ABC
-
Mixed Offerings: $YOLO, $CNBS
Three notes are in order. First, anything with an ‘F’ in the symbol means that it’s an over-the-counter trade and so won’t be widely available. These firms are typically inter-state operators. Because the US doesn’t have a federal framework, they need to adjust their offerings across states. Second, $MSOS is the ETF with direct exposure to many of the US cannabis stocks–if you don’t want to manage all those individual positions. Third, most non-US offerings will benefit indirectly from more progressive cannabis legislation.
Now let’s address what actions could be taken to help the cannabis industry. It’s more complex than you think.
Action 1: Rescheduling cannabis, rather than descheduling, isn’t what the industry wants. Alcohol isn’t a scheduled drug at all. Still, a move by the DEA to make cannabis a schedule III would ease tax burdens for US based cannabis firms.
Action 2: The SAFE banking act, or something like it (because that one was killed by Republicans in congress), would help both US and non-US based firms.
Action 3: Medical cannabis legalization in a state. This tends to have little overall effect on cannabis stocks.
Action 4: Recreational cannabis legalization in a state. This tends to have quite delayed effects for cannabis stocks as it is the process of dispensary approval that results in increased sales for stocks.
Action 5: National legalization or decriminalization. While legalization is preferable, both actions would dramatically accelerate the growth of this industry in the US and clear pathways to dispensary approvals.
Where do the candidates stand?
In general Republicans and Democrats are mirror images on cannabis and cryptos. Republicans have traditionally been opposed to cannabis legalization efforts but have recently begun to change their stance to gain the marginal votes needed to win in swing states (with hold-outs such as DeSantis in Florida). Democrats are similar with respect to cryptocurrencies (with hold outs such as Elizabeth Warren in Massachusetts) .
Thus, while Harris has made relatively tepid endorsements in favor of cryptocurrencies, she has made bold endorsements of cannabis. She has promised to spearhead efforts to nationally legalize cannabis. This is the holy grail of all possible actions.
Will she be able to achieve this? Not without congressional approval and a divided congress is likely should she win. She is almost certain, however, to push forward progress on rescheduling cannabis and advance legislation on something like the SAFE act–which is desirable for banks. She is likely, also, to facilitate the legal process of dispensary approval.
-
Short term: this will help all the cannabis stocks if she wins.
-
Medium to Long term: you will still need to do your homework to determine if the tax breaks and operational cost gains are going to be significant enough to make currently unprofitable cannabis firms AI-styled revenue kings.
While Donald Trump has launched his own crypto DeFi protocol, he’s only just now begun to endorse cannabis reform (source). It is part of his effort to peel black male voters away from Harris and this could make the needed difference in battle ground states.
In his previous term, his Attorneys General Jeff Sessions and Bill Barr were directly hostile to the cannabis industry. Sessions even repealed the Cole Memo, which shielded state-level cannabis operations from interference by the justice department.
What Trump has done is announce support for pro-cannabis policies on social media (though never on the campaign trail). He has stated that he will:
-
vote YES to legalize recreational cannabis in Florida,
-
push to make sure cannabis is counted as a Schedule 3 drug,
-
work to pass something like the SAFE act.
Given that this topic has lower legislative priority, I do question whether something like the SAFE act would be passed under Trump. At least, speedy action seems unlikely.
I don’t foresee much of a short term bump in cannabis stock prices should he win. In the medium to longer term, these reforms might be meaningful enough for some of the stronger firms to continue in operation.
Generally, things will be better with whomever becomes president and some states are likely to make advances in legalization.
If you want to make some bets for this industry, then now is about the right time. In the image below (with $CGC) you can see that the market is pricing in better news, but no positive explosion has happened yet.
Cannabis stocks do tend to explode upward, so you have no other option than to get in early and wait for events to transpire. The previous upward explosion this year was propelled by hopes of Schedule 3 changes–which have been deferred until after the election.
As for whether you should hold those stocks, it looks as though only a Harris victory could make sense of that, and even then only if specific actions are taken. Most likely, these are going to be trades that you will need to take profits with early.
Happy Trading!
- Sebastian Purcell, PhD
