Why Marijuana Stocks Dropped on Thursday

What happened

Less than a week after the U.S. House of Representatives voted to legalize marijuana — for only the second time ever in history — enthusiasm for marijuana stocks is disappearing like smoke with both the door and windows open.

Since the Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act was passed, shares of Sundial Growers ( SNDL -7.58% ), Aurora Cannabis ( ACB -6.37% ), and Canopy Growth ( CGC -6.41% ) have all headed in just one direction — down. Today marks the third straight day of selling. Here’s how things stand as of 12:50 p.m. ET:

  • Sundial Growers stock is down 8.1%.
  • Aurora Cannabis shares have lost 8.2%.
  • Canopy Growth stock is leading the whole sector lower with a 9.1% loss.
Smoke filled room in black and white.

Image source: Getty Images.

So what

What’s got marijuana investors so bummed out today? In a word: The U.S. Senate.

The U.S. House may have passed the MORE Act, you see, but it did that in 2020 as well — only to see the bill die in the Senate. This time around, chances for Senate passage of a cannabis reform bill look somewhat brighter due to:

  • An election year where a new Pew poll shows 60% of voters favoring outright legalization of cannabis, and 91% favoring at least legalizing medicinal marijuana.
  • A year of budget deficits, where the latest data shows that marijuana taxes pumped up state budgets to the tune of $3.7 billion in extra tax revenue last year.  

That being said, passage still isn’t certain. And even if legalization does happen, investors may still be upset at the speed at which legalization is (not yet) moving. As MarijuanaMoment.net points out today, Senate Majority Leader Chuck Schumer originally promised to introduce the Cannabis Administration & Opportunity Act (CAOA — the Senate’s version of the House’s MORE Act) in April — and that may have led investors to hope for quick passage of a Senate bill to match the bill passed in the House.

But in his latest statement on the matter, Schumer clarified that he actually wants to introduce the bill “toward the end of April” (emphasis added).  

Now what

Again, even assuming this target date gets met, legalization won’t happen immediately thereafter. First, the CAOA must run through Senate committees as it’s prepared for a vote. Then the vote must happen (and 60 “yea” votes will be needed to overcome a filibuster; Senate passage isn’t certain).

Even then, the process isn’t ended, because while the CAOA resembles the MORE Act in some respects, it’s not a direct copy, and the Senate and House will need to reconcile their two passed bills into a single, final bill legalizing marijuana to send to the president. And then that bill will still need to win the President’s approval. And the president may oppose legalization!

Long story short, last week marked a victory for advocates of legalizing marijuana, but there’s still a long road ahead before marijuana investors reach the (presumed) bonanza of sales growth that legalization will bring. As investors begin to realize how far off full legalization may remain, the initial euphoria over House passage appears to be wearing off today.

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.

Source link

Leave a Reply

Your email address will not be published.