A move in in both the U.S. House of Representatives and the Senate to reintroduce legislation to open up the financial system for cannabis companies has sparked a rally in beaten-down stocks in the sector on Thursday.
The legislation has been passed by the House seven times but has yet to win Senate approval. Wall Street analysts and lawmakers said the latest version may come to a vote in the Senate for the first time.
However, analyst Benjamin Salisbury of Height Capital Markets sees only a 10% to 15% chance that the measure will actually pass because of past opposition from Senate minority leader Mitch McConnell and other Republicans.
Nevertheless, the AdvisorShares Pure U.S. Cannabis exchange-traded fund is rallying by 12.1% and the ETFMG Alternative Harvest ETF is up by 6.2% after lawmakers late Wednesday reintroduced the SAFE Banking measure.
Prior to Thursday’s gains, the AdvisorShares Pure U.S. Cannabis ETF was down 25% in 2023 and the ETFMG Alternative Harvest ETF had lost about 26% of its value.
Among individual cannabis stocks, Curaleaf Holdings Inc. is up by 13%, Trulieve Cannabis Corp. is up 13.7%, Green Thumb Industries Inc. is rallying by 12.3% and Canopy Growth Corp. is up by 3.9%. Tilray Brands Inc. is up by 10.3%, Cresco Labs Inc. is up by about 6.2%, Verano Holdings Corp. is up by 8.9% and Innovative Industrial Properties Inc. is ahead by about 3%.
“Even a basic version of the SAFE Act passing would represent a notable step in federal cannabis reform and set the stage for a domino effect of other reform bills to follow,” said Alliance Global Partners analyst Aaron Grey.
And in a research note published Thursday, Jefferies analyst Owen Bennett said, “We think this has a real chance of passing.”
Bennett said: “While we can debate U.S. cannabis fundamentals (we still think the outlook is as good, if not better, than any other industry), the thing that has been by far the biggest driver of depressed multiples has been the lack of access to institutional capital, due to being listed on the pink sheets, and the fact cannabis is federally illegal and investors potentially facing prosecution for money laundering. We think this is the year this could finally change.”
Bennett noted that the latest version has 40 sponsors in the Senate, including five Republicans.
The latest bill does not provide specific capital-market protections, but it includes language about proceeds from state-legal cannabis businesses not being considered as proceeds from an unlawful activity, Bennett said.
The four lead sponsors said in a joint statement that “for the first time” there was a “path” for SAFE Banking to get a vote on the Senate floor. Within the Senate, the next step would be for the bill to go through the Senate Banking Committee before being put on the Senate floor.
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Sens. Jeff Merkley, an Oregon Democrat, and Steve Daines, a Montana Republican, along with House members Dave Joyce, an Ohio Republican, and Earl Blumenauer, an Oregon Democrat, introduced the legislation.
“Forcing legal businesses to operate in all-cash is dangerous for our communities; it’s an open invitation to robbery, money laundering, and organized crime — and it’s way past time to fix it,” Merkley said in the statement. “For the first time, we have a path for SAFE Banking to move through the Senate Banking Committee and get a vote on the floor of the Senate.”
Unlike earlier versions, the new SAFE Banking measure would, for the first time, extend the safe-harbor provisions to community development financial institutions, or CDFIs, and to minority depository institutions, or MDIs.
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