Why Cresco Labs Is Up By More Than 15% This Week

What happened

Shares of Cresco Labs (OTC:CRLBF) jumped 15.4% this week from their Jan. 28 closing price, according to data by S&P Global Market Intelligence, after the House of Representatives attached a marijuana banking reform amendment to a bill dealing with innovation and manufacturing — particularly in the arena of domestic semiconductor chip production. That bipartisan bill is expected to pass both houses of Congress easily. Cresco shares were trading up by about 7% as of noon ET on Friday.

The Secure and Fair Enforcement Banking Act — aka, the SAFE Banking Act — would open up financing and allow banks to establish relationships with marijuana businesses operating in states that have legalized its use for medicinal or recreational purposes. The measure specifically prevents federal regulators from sanctioning financial institutions that do business with such companies.

It was attached last week to the America COMPETES (Creating Opportunities to Meaningfully Promote Excellence in Technology) Act of 2022, which will provide $52 billion in new support for the U.S. semiconductor industry, and give incentives for companies to manufacture chips here.

Woman with outstretched arms in marijuana field

Image source: Getty Images.

So What

This isn’t the first time the SAFE Act has advanced in Congress. In fact, the House of Representatives has approved the measure four different times, the most recent being last year, when it was attached as an amendment to a defense reauthorization bill. However, it was blocked from inclusion into the final bill by Senate Majority Leader Chuck Schumer, who wants broader cannabis legislation to be passed instead. It is believed the SAFE Act has a better chance of making it through both houses of Congress this time as a part of the America COMPETES Act.

That would be a win for multi-state operators (MSOs) like Cresco, Green Thumb Industries, and Trulieve Cannabis, which would finally be able to access traditional financing resources.

Because marijuana remains a Schedule 1 controlled substance at the federal level, banks are prevented from lending to companies operating cannabis businesses, or even letting them establish bank accounts.

Now what

While cannabis has been legalized in many states, the resulting legal and regulatory patchwork quilt has made it difficult for MSOs to expand as much as they would like to. An array of proponents have been calling for full federal legalization of cannabis — and they continue to.

However, that’s still not a step that the necessary majorities and supermajorities in Congress are willing to take, so a bill that would allow cannabis companies to at least establish traditional banking relationships would be a helpful interim measure, and would give pot stocks a boost.

And legalization carries its own set of issues. Canada’s experience shows that it’s not the panacea that many had hoped it would be. That nation’s slow adoption of regulations and its glacial pace of issuing licenses for cannabis businesses has impaired the legal industry’s growth, and its high tax rates on cannabis products mean that marijuana is still cheaper to buy from illegal sources than via the legal channels.

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

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