In a letter outlining his near-term agenda, Senate majority leader Chuck Schumer (D-NY) says passing bank reform that favors the cannabis sector is a top priority.
The letter to Senate colleagues confirms what lobbyists and cannabis company execs have been reiterating for the past several weeks: July could be a turning point for the group, offering legislative developments that push marijuana stocks much higher.
This sets up cannabis as a potentially good short-term swing trade, but it also confirms the bullish long-term prospects for the group.
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Cannabis investors have already taken the bait. The AdvisorShares Pure US Cannabis exchange-traded fund (MSOS) is up 16% since June. In my view, this advance sets up the group for some very near-term risk. Cannabis experts and lobbyists actually target the second half of July for progress. This makes sense, since the Senate banking committee – expected to mark up a bank reform bill soon – has other matters it says it wants to take up first.
So, very near-term sector weakness would not be surprising. My logic here is that cannabis investors are extremely fickle and trigger-happy. This is understandable, given how hard the sector has been hit in the past ten months. But it also means cannabis investors and traders are extremely quick to sell if they buy expecting bullish news out of Washington, D.C., and then do not get instant gratification.
The bottom line: Cannabis sector weakness over the next several days could be a good trading buy, on expectations of Senate progress later in July. After that, Washington, D.C. goes on break for the month of August.
At issue here is a key bank reform bill called the Secure and Fair Enforcement (SAFE) Banking Act, or “SAFE banking” for short. It would allow banks to do business with cannabis companies. This would help them in two ways.
First, dispensaries would no longer be cash-only businesses. This removes a security risk and makes buying more convenient. Second, cannabis companies would get access to lower-cost capital.
There’s also a wild card in the mix. Boris Jordan, the executive chair at Curaleaf (CURLF), has speculated the bank reform bill could contain provisions that allow cannabis companies to “uplist” to more mainstream exchanges like the Nasdaq or the New York Stock Exchange. Currently, they trade over the counter, for the most part.
There are risks here, in any near-term swing trade. First, it is always hard to predict the actions of politicians. Next, Schumer himself cautions passage of the bill “will not be easy” and requires GOP support. However, lobbyist Don Murphy, Director of Federal Policies at Marijuana Policy Project, says the bill in its current form has filibuster-proof support of more than 70 senators.
So, the real risk is that Schumer or other politicians on the left load the bill up with “social justice” amendments like criminal justice reforms that alienate conservative senators. This has hindered passage in the past. SAFE banking has been kicking around for ten years, and it often has gotten torpedoed by these kinds of amendments.
For real-time suggestions on when to exit any near-term SAFE banking swing trade in this extremely volatile group, the best equities to consider, and other near-term catalysts like possible sector M&A, state legalization efforts, and key sector news from around the world, consider subscribing to Cabot Cannabis Investor today. A click here will get you started.
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