With the celebrated day of cannabis, April 20, just around the corner you might be thinking this is a good time to consider marijuana stock investing.
You’d be right. But not because “420 day” looms.
Instead, a couple of near-term catalysts could propel cannabis stocks much higher.
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The big-picture backdrop here is that this is an election year, and many young voters are increasingly ambivalent towards President Joe Biden. He’s fighting back against the malaise by trying to forgive more student debt. Likewise, he’s on board with liberalizing cannabis laws. Other politicians on both sides of the aisle recognize cannabis as a wedge issue. So, they, too, are backing reform. The upshot is we could see real progress on cannabis reform in Washington, D.C. fairly soon.
Here are two key cannabis catalysts that we may see in the near term.
Cannabis Rescheduling
The Nixon-era Controlled Substances Act (CSA) classifies cannabis as the worst kind of drug, putting it in the Schedule I category along with heroin. Biden’s Department of Health and Human Services (HHS) has asked the Drug Enforcement Administration (DEA) to bump it down to Schedule III.
This rescheduling progress will put a bid under cannabis stocks because the change would create a lot of cash flow for cannabis companies. It would neutralize an Internal Revenue Service rule that prohibits the deduction of operating expenses against revenue from the sale of Schedule I drugs.
The next step should be a DEA-proposed rule advancing the change, which would be published in the federal register. It seems like that could happen almost any day now. A DEA official recently said it can take up to six months for DEA to complete its review of an HHS request like this one.
This could be a key insight for cannabis investors because it has been a little over seven months since HHS recommended to the DEA that it move cannabis to Schedule III. HHS made its recommendation to the DEA on August 29 last year.
The comment suggests a proposed rule on rescheduling from the DEA – the next step in the process – could be imminent. Of course, we don’t know the DEA will go along with the HHS recommendation, but that’s normally the case.
The comments on the timeline were made by DEA Senior Prevention Program Manager Richard Lucey in a DEA podcast which was part of the agency’s “Prevention Profiles: Take Five” series. Vice President Kamala Harris recently urged the DEA to finalize its cannabis review “as quickly as possible.”
Cannabis Banking Reform
Senate Majority Leader Chuck Schumer (D-NY) on April 5 reiterated his goal of seeing cannabis sector banking reform passed in the “weeks and months ahead.” A Senate banking committee has approved the Secure and Fair Enforcement Regulation (SAFER) Banking Act, which would allow banks to serve cannabis companies. But the full Senate has not taken it up. Progress on this bill would be a major sector catalyst. Schumer made the comments in an open letter to colleagues outlining a busy legislative agenda.
There is bipartisan support for this change. Rep. Nancy Mace (R-SC) in early April said Republicans should pass cannabis banking reform if they want to maintain control of the House of Representatives. She also said there is enough support in the House to get this done. She made the comments in a podcast.
Mace has long tried to convince fellow Republicans that they can exploit cannabis reform as a wedge issue to win votes from Democrats. “If Republicans want to keep the House, it’s a good bill to have on the floor,” she said in a Dales Report podcast.
Both changes would make sense, if you think politicians should respond to the will of voters. An overwhelming majority of U.S. adults, or 88%, say cannabis should be legal for medical or recreational use, says a new Pew Research Center poll released in late March. About 57% say cannabis should be legal for both purposes, and 32% say that cannabis should be legal for medical use only. Just 11% of Americans say that the drug should not be legal at all. The poll found that young people, Democrats, and minorities are more likely to approve of legalization.
Meanwhile, Former Minnesota Gov. Jesse Ventura isn’t waiting around. He’s launching a new line of cannabis products including some he says he would “offer to you if you were visiting me in the Governor’s mansion.” Called Jesse Ventura Farms, the line includes a “Governor’s Select Collection” that he says is “bold and powerful” just like his politics. Possession is legal in Minnesota but the state is still in the process of setting up legal sales. Ventura’s partner Retro Bakery offers hemp-derived THC products which are legal to sell under state law.
For more on the best names in the space and the timing other potentially big cannabis group catalysts, consider subscribing to Cabot Cannabis Investor.
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