Political Rhetoric Fuels Pot Stock Rally

For marijuana investors, I can succinctly summarize the future in four words: “We will decriminalize marijuana.”

Those words were uttered by Democratic vice presidential candidate Sen. Kamala Harris (D-CA), in her debate with Vice President Mike Pence on the evening of October 7. Her pledge has proven a powerful catalyst for marijuana stock prices, with upward momentum that will probably last until the November 3 election and beyond.

Marijuana stocks have been rising in recent weeks, as political candidates in the U.S. increasingly express pro-marijuana positions. With the November election getting closer, we’re seeing bullish sentiment in the cannabis sector.

“We will decriminalize marijuana” is a political promise that conveys a tailwind for all pot industry players. After Harris made that statement, marijuana stocks rallied the next day and they haven’t stop rising. Her running mate, presidential candidate Joe Biden, backs rescheduling marijuana under federal law, letting states set their own policies, and legalizing medical cannabis.

So far in the month of October, the benchmark Horizons Marijuana Life Sciences Index ETF (HMMJ) has risen 8.2%, compared to 2.7% for the S&P 500 Index (as of market close October 21).

To be sure, the cannabis sector is not monolithic. Instead, it’s made up of various sub-sectors, each subject to singular market drivers. That said, we’re seeing stronger revenue and profits across the board, as marijuana companies finally come to grips with overcapacity.

The consolidation of late 2019 has resulted in greater efficiencies, economies of scale, and higher margins. Many small-cap marijuana stocks, in particular, have strengthened their balance sheets and they now make appealing value plays.

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The marijuana industry is getting financially strong, at the same time that the political environment is becoming more favorable. These trends are setting the table for another upward surge in marijuana stocks. The “green rush” isn’t over. It’s just getting started.

Getting behind MORE…

A coalition of state and local marijuana regulators sent a letter to U.S. House leadership on Wednesday, calling for the chamber to expedite a marijuana legalization bill that’s expected to get a floor vote following the November election.

The letter argues that regulators “need comprehensive support in their individual and collective efforts to more responsibly and equitably manage challenges and develop solutions associated with cannabis and cannabis policy.”

The letter touts the Marijuana Opportunity, Reinvestment and Expungement (MORE) Act as a solution and urges legislators to vote in favor of the bill when it comes up for a vote.

Harris is the lead sponsor of MORE in the Senate (see the following tweet):

The MORE Act would federally deschedule cannabis and expunge the records of those with previous marijuana convictions. MORE would impose a 5% tax on cannabis sales, the revenue from which would be reinvested in communities most harmed by the War on Drugs.

MORE also would expedite resentencing for people imprisoned for marijuana offenses, protect immigrants from being denied citizenship because of cannabis, and prevent federal agencies from blocking public benefits or security clearances due to its use.

There’s marijuana-related legislative activity on other fronts as well. Notably, Senate Minority Leader Chuck Schumer (D-NY) on Monday included marijuana banking language in a new coronavirus relief bill he introduced. As of this writing on Thursday, hopes for a stimulus package are waning.

Nonetheless, Democrats are determined to insert marijuana-friendly language in any resulting bill. Their main obstacle is Senate Majority Leader Mitch McConnell (R-KY), an avowed enemy of marijuana legalization. But after November 3, we could be facing a completely transformed political landscape.

Regardless of who’s in power, marijuana legalization enjoys tremendous velocity. In an historic moment for marijuana legalization, the U.S. House last September passed the Secure and Fair Enforcement (SAFE) Banking Act, which is designed to protect banks that accept marijuana business clients from being penalized by federal regulators.

The SAFE Banking Act still requires the approval of the U.S. Senate and President Trump to become law, but the trend is clear: hurdles to the “normalization” of marijuana are falling by the wayside. The language Schumer inserted into the COVID-19 relief bill this week largely mirrors that of the SAFE Act.

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John Persinos is the editor-in-chief of Marijuana Investing Daily.