This next catalyst could boost marijuana stocks

Here we go again. The Secure and Fair Enforcement (SAFE) banking bill was passed by the House earlier this month. If this sounds familiar to you, it’s because it passed the House in 2019, only to end up getting nowhere in the Senate. Democrats also included it as part of a coronavirus relief bill last year, only to have it finally deleted.

But this time things are different. Unlike in previous years when there was strong opposition in the Republican-controlled Senate, Democrats now control Congress. There is a much greater chance that the bill will not only receive some attention in the Senate, but will pass. Here’s why the bill is important and why it could propel pot stocks to new heights.

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It will address some major industry issues

The SAFE banking bill would make it easier for banks to do business with cannabis companies. Many large financial institutions are reluctant to offer services to marijuana businesses due to the federal marijuana ban, which can make it difficult to get a simple bank account. This does not mean that no one offers banking services. According to the Financial Crimes Enforcement Network (FinCEN), 515 banks and 169 credit unions were providing banking services to the sector at the end of the first quarter of 2021.

But that doesn’t mean cannabis companies can get loans or that the process isn’t cumbersome for financial institutions. Banks dealing with an illicit industry like marijuana must file a Suspicious Activity Report (SAR). FinCEN does not have a depository institution on its list unless it receives a SAR (which should be every 90 days). And with data from FinCEN showing a decline in the number of banks offering services over the past year, the pandemic and downsizing may have exacerbated those filing efforts.

For the cannabis industry, the lack of services means that not only is funding nearly impossible, but there is also no longer a need to carry cash. This can make dispensaries a target for burglaries, which is why cannabis companies often seek security services to help protect their assets and employees.

Under the SAFE banking bill, large banks would be free to do business with cannabis companies that operate legally in their state, without fear of repercussions.

Why SAFE Banking might still not pass the Senate

Although Democrats have control of the Senate, it is not a guarantee that they will all vote in favor of the SAFE bank. But another reason it may not come into law now is that Senate Majority Leader Chuck Schumer has his eyes set on even bigger changes that involve legalization. In an interview with Marijuana Moment, he said: “I have always been of the opinion that while we certainly have to deal with banking and financial issues, we should do them along with legalization.” The aim is to get “as large a coalition as possible” to support the bill.

Banking reform looks likely to happen, but questions remain as to when it might happen if Schumer is working on a legalization bill for the first time. Either way, with Democrats now in charge of Congress amid heavy pressure for meaningful marijuana reform, it’s less about if change is happening and more so about when it will take place and the extent of the scope of the legislation.

Why now might be a great time to hold pot stocks in your portfolio

Since the federal election in November, the Horizons Marijuana Life Sciences ETF climbed more than 68%, well ahead of the S&P 500 and its gains of about 25%. Actions of the large multi-state operator Curaleaf Fund (OTC: CURLF) increased by more than 30% during this period while Green thumb industries is up over 60%. With marijuana reform in the news and a large state like New York recently legalizing recreational cannabis, investors have been bullish on the industry.

The only major hurdle remains the federal ban on the pot, which, once gone, could open the floodgates for more expansion and growth. A licensed producer like Curaleaf would no longer need to acquire dispensaries in other states to expand their reach across the country. They could just ship products across states, which they can’t do today.

But even if outright legalization doesn’t happen, marijuana reform seems to be on the horizon – and that alone could change the outlook for the industry and pave the way for bigger changes in the future. One of them could involve US-based pot stocks moving to major exchanges like the New York Stock Exchange or the Nasdaq, which Curaleaf director Boris Jordan is optimistic could happen. starting this year. Canopy growth CEO David Klein is also optimistic about the reform and believes his Canadian company will be able to enter the U.S. pot market by 2022.

Whether you think their projections are too optimistic, the outlook for the industry is much better than it was just six months ago under a Republican-controlled government, where there was little hope. let the marijuana reform pass. Research firm BDSA predicts that the U.S. cannabis market will be worth $ 34.5 billion in 2025 and grow at a compound annual rate of 18% by then. Holding pot stocks in your portfolio today could set you up for tremendous long-term growth in the years to come.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

About Scott Conley

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