There’s been a lot of support to end federal cannabis prohibition in the U.S. Many states have taken up legalization by themselves and more join the “pro-cannabis team” each year. In fact, there are only a few states left without some form of legal cannabis today.
States have launched medical and adult-use markets and this has created a booming new industry. Legal cannabis sales in the U.S. rose 40% last year to more than $25 billion. Many of the largest publicly traded multistate operators are reporting more than $1 billion in annual sales.
But pot stocks haven’t had much to cheer this year. The AdvisorShares Pure U.S. Cannabis ETF (NYSE: MSOS) is down more than 23% year to date and lost more than 50% over the past year. Individual American multistate operators have done even worse. Shares of Canadian producer Canopy Growth Corp. (NYSE: CGC) have lost more than 75% in the last 12 months.
The House is preparing to vote on the MORE Act once again. There is little question the MORE Act will clear the House. Every piece of pro-cannabis legislation introduced in the last 3 years has been greenlit by the lower chamber.
The MORE Act is important for cannabis producing companies as it frees them from the destructive Section 280E of the federal tax code. This prevents cannabis businesses from taking tax deductions for ordinary business expenses.
But we should not get too euphoric as there is little doubt that legislation will die in the Senate.
The Senate is a graveyard for pro-cannabis efforts. The SAFE Banking Act died there, as did the MORE Act previously.
Federal legalization in the U.S. always takes far longer than we want to believe. In the meantime, states will continue on the expansion of the U.S. cannabis market. Therefore, take the long-term view and build your position in undervalued US multistate operators when they are on sale again. But be patient, success might take longer than you think. The prohibition will end but not this week and probably not this year.
Sven Franssen