Cannabis stocks have been a bit of a drag on the markets recently, but there’s renewed hope around the corner after the Secure and Fair Enforcement (SAFE) Banking Act was approved by the House yet again. If the bill does finally get passed by the Senate, it could be an encouraging development for investors with an eye on the cannabis market.
Companies within the cannabis sector have already been rolling out ambitious expansion plans: Curaleaf [OTC:CURLF], for example, recently closed the $67m acquisition of a large outdoor grow in Colorado. Its attempts at rapid expansion, including into European markets, could be further facilitated by the banking bill – if it finally gets the green light from US regulators.
How are cannabis stocks performing?
Our ETF performance scanner shows that our tracked Cannabis ETF – the ETFMG Alternative Harvest ETF [MJ] – has gained 21.87% over the last year, but has fallen -10.86% in the last month, as at Tuesday 12 October. The ETF’s top cannabis stocks include Aurora Cannabis [NASDAQ: ACB] with a 7.69% weighting, Tilray [NASDAQ: TLRY] (6.88%) and Canopy Growth [NASDAQ: CGC] (6.84%).
Tilray has fallen -15.71% in the last month and -40.03% in the last six months, yet is still up 14.54% year-to-date and 63.63% over the last year, outstripping the S&P 500’s 23.24% one-year gain. Aurora Cannabis is down -26.37% for the year-to-date but with a 40.76% one-year gain, while Canopy Growth has fallen -49.85% so far in 2021, and -33.20% in the past 12 months.
Percentage Tilray is up on the year, despite falling -40.03% in the last 6 months
The Horizons Marijuana Life Sciences ETF [HMMJ] has fallen -32.34% across the last six months, while shares of leading US multi-state operators, Trulieve Cannabis [OTC:TCNNF] and Curaleaf, have slipped -29.56% and -21.01% respectively over the same period, with a lack of progress on legalisation unlikely to offer encouragement to growth investors, according to the Motley Fool. In comparison, the S&P 500 index is up 5.49% over the previous six months, as of Tuesday 12 October.
What’s happening with the banking bill?
The SAFE Banking Act, which was approved by the House for a fifth time last month, having initially been approved in 2019, would enable financial institutions and other organisations to conduct business with marijuana companies – without having to worry about potential legal consequences, reports the Motley Fool. The bill doesn’t go as far as legalising marijuana, but cannabis stocks would be able to take advantage of finance opportunities with the big banks that they don’t enjoy now. At the moment, most of the larger banks avoid dealing with the sector “out of fear of repercussions from the federal government”, according to The Motley Fool’s David Jagielski.
The bill was previously approved by the House in April, but didn’t progress anywhere on that occasion because Senate majority leader Chuck Schumer's priority is on more significant marijuana reform, including legalisation, according to Jagielski, who reckons that this time it’s “probably the best chance the bill has at passing the Senate”.
“the best chance the [SAFE Banking] bill has passing the Senate" - David Jagielski, Motley Fool, on the outlook for the legislation that could transform cannabis investing
Curaleaf rolls out ambitious expansion plans
Curaleaf’s attempts at expansion, including into Europe, could get a leg up by the banking act. The US cannabis firm, which has operations across over 20 US states, plans to expand into new recreational marijuana markets like New York State and New Jersey, reports the Motley Fool, which could open up for business in 2022. Having easier access to funding from the big banks could help the company’s push into Europe through Curaleaf International, as well as help the company avoid the need to issue new shares to raise money.
What’s next for cannabis stocks if the banking bill gets Senate approval?
Trulieve and Curaleaf have combined for $1.7bn in revenue over the past 12 months, reports the Motley Fool, but the respective share prices of both cannabis stocks have been falling this year so far. The industry has been lacking a legal breakthrough to give the sector a shot in the arm, and as a result, cannabis stocks have been on the slide. The hope among investors is that the banking bill could be the catalyst for the industry.
Trulieve and Curaleaf are two such marijuana businesses primed to reap the benefits from the SAFE Banking Act’s passing, as it would clear the bureaucratic fog which slows these firms down in terms of funding and expansion, and would help to make their operations more straightforward, and less costly.
For cannabis stock investors, the passing of the bill would serve as tangible proof that marijuana reform is gaining ground, and that news in itself could be the spark needed to rejuvenate cannabis stocks.