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Why Election Season Could Spur a Cannabis Stock Rally

Politics and cannabis investing go hand in hand, and if it becomes a wedge issue, the politicians may finally catch up to the voters’ position.

Cannabis Leaf

Politics are something of a double-edged sword when it comes to cannabis investing. On the one hand, the possibility of cannabis reform at the state and federal levels is a massive driver for share prices of cannabis companies.

On the other hand, political winds are often fickle and, as we saw with last year’s SAFE Banking disappointment, the failure of highly anticipated legislation can be devastating for the stocks.

So, with the presidential election cycle heating up as Florida Gov. Ron DeSantis (R) announces he’s running for the 2024 Republican presidential nomination, it’s worth considering what the elections will mean for cannabis policy.

While leading candidates on the right – like DeSantis and former president Donald Trump – are not big fans of reform that favors the industry, that’s not necessarily all bad for stocks in the group. After all, contenders on the left recognize this means cannabis is a wedge issue they can use to win over voters.

That’s not a dumb strategy.

* Polls consistently show the majority of Americans favor legalization, even older conservatives who are the least likely to support this reform.

* States continue to legalize recreational use – a reflection of this public support – and more are on the way. Minnesota’s governor Gov. Tim Walz (D) recently signed a bill legalizing recreational use, making his state the 23rd state in the nation to do so. Maryland launches recreational use legalization in July.

In both Ohio and Pennsylvania, bi-partisan efforts are underway to do the same. In the Buckeye State, advocates are collecting signatures to put cannabis reform on the ballot. Both states border on multiple states that have legalized, putting pressure on them to reform or miss out on tax revenue. States overall have collected $15.1 billion in revenue since legalization, and over $3.77 billion in 2022 tax revenue from adult-use sales, says the Marijuana Policy Project.

With all of this in mind, here’s a quick look at where DeSantis stands on cannabis reform.

The Florida governor offers a mixed picture. His record suggests that he opposes cannabis legalization. Yet he’s governor of a state with one of the most thriving medical-use markets in the country. There, he even took steps as governor to support medical use. He helped eliminate a ban on smokable marijuana products for medical cannabis patients in 2019.

Regarding medical use, he’s on record endorsing the need to “respect the will of the voters.” That’s key, because reform advocates have collected enough signatures to put recreational use on the next ballot in Florida. The referendum language still needs to be approved by Florida courts.

In Congress, DeSantis voted in favor of amendments to protect state medical and recreational cannabis programs from federal interference. But he has opposed reform that would protect banks that provide services to state-legal cannabis businesses.

While this mixed record seems like a negative for cannabis stocks, it opens up the opportunity for politicians on the left to put cannabis reform on the election agenda as a wedge issue to win votes. Raising the prospects of cannabis reform will no doubt attract interest in cannabis stocks and drive them higher, as we saw last September when Democrats dangled banking reform and rescheduling in front of voters. Neither happened. But the moves created a huge rally in cannabis stocks.

To learn which cannabis stocks we’re investing in, subscribe to Cabot Cannabis Investor today.

Michael Brush is an award-winning Manhattan-based financial writer who writes a stock market column for MarketWatch. He is editor of Brush Up on Stocks, an investment newsletter. Brush previously covered the stock market, business and economics for the New York Times, the Economist Group, MSN Money, and Money magazine.