The Motley Fool - This Upcoming Catalyst Could Send Marijuana Stocks Soaring
29 April 2021 - 12:07AM
InvestorsHub NewsWire
Will it be déjà vu for investors,
or is marijuana reform really on its way?
April 28, 2021 -- InvestorsHub NewsWire -- via David
Jagielski - The Motley Fool
Here we go again. The Secure and Fair Enforcement (SAFE) banking
bill passed the House earlier this month. If that sounds familiar,
it's because it passed the House in 2019, only to end up going
nowhere in the Senate. Democrats also included it as part of a
coronavirus relief bill last year, only for it to eventually get
stripped out.
But this time, things are different. Unlike in previous
years when there
was stiff opposition in the Republican-controlled Senate,
Democrats now have control of Congress. There is a far greater
likelihood that the bill will not only get some attention in the
Senate, but that it will pass. Here is why the bill matters and why
it could send pot
stocks to new heights.
It will address some major problems for the industry
The SAFE banking bill would make it easier for banks to conduct
business with cannabis companies. Many large financial institutions
are wary of offering services to marijuana businesses because of
the federal prohibition of pot, which can make it difficult to
simply obtain a bank account. That doesn't mean no one offers
banking services. According to the Financial Crimes Enforcement
Network (FinCEN), there were 515 banks and 169 credit unions that
were providing banking services to the industry as of the end of
the first quarter of 2021.
But that doesn't mean that cannabis companies can obtain loans
or that the process isn't cumbersome for financial institutions.
Banks dealing with an illicit industry like marijuana need to file
a suspicious activity report (SAR). FinCEN doesn't count a
depository institution in its list unless it receives an SAR (which
should be every 90 days). And with FinCEN data showing a drop in
the number of banks offering services over the past year, the
pandemic and reduced staffing may have exacerbated those filing
efforts.
For the cannabis industry, a lack of services means that not
only is financing next to impossible, but there is also a greater
need to carry cash. That can make dispensaries a target for
burglaries, which is why cannabis companies often seek out security
services to help safeguard both their assets and employees.
Under the SAFE banking bill, major banks would be free to do
business with cannabis companies that are operating legally within
their states, without fear of repercussions.
Why SAFE banking still might not pass the Senate
Although Democrats have control of the Senate, it isn't a
guarantee they will all vote in favor of SAFE banking. But another
reason it may not come into law right now is that Senate Majority
Leader Chuck Schumer has his eyes set on even greater changes that
involve legalization. In an interview with Marijuana Moment, he
said, "I've always been of the view that while certainly we have to
deal with the banking and financial issues that we should do them
together with legalization." The goal is to get "as broad a
coalition as possible" to support the bill.
Banking reform does appear likely to happen, but there are still
questions about when that might be if Schumer is first working on a
legalization bill. Either way, with the Democrats now in control of
Congress amid a strong push for some meaningful marijuana reform,
it's less of a question of if change happens and
more about when it will take place, and how large the scope of the
legislation will be.
Why now may be a great time to hold pot stocks in your
portfolio
Since the November federal election, the Horizons
Marijuana Life Sciences ETF has climbed more than
68%, well ahead of the S&P 500 and
its gains of about 25%. Shares of large multistate
operator Curaleaf Holdings (OTC:CURLF) have risen over 30% during that time
while Green Thumb Industries is up over
60%. With marijuana reform in the news and a big state like New
York recently legalizing pot for recreational use, investors have
been bullish on the industry.
The one significant obstacle remains federal prohibition of pot,
which, when it is gone, could open up the floodgates to more
expansion and growth. A licensed producer like Curaleaf would no
longer need to acquire dispensaries in other states in order to
expand its reach across the country. It could simply ship products
across state lines, which it can't do today.
But even if outright legalization doesn't happen, marijuana
reform seems to be on the horizon -- and that alone could change
the prospects for the industry and pave the way for bigger changes
down the road. One of them could involve U.S.-based pot stocks
moving onto major exchanges like the New York Stock Exchange or
Nasdaq, something that Curaleaf executive Boris Jordan is
optimistic could happen as early as this year. Canopy
Growth CEO David Klein is also
optimistic about reform, and believes his Canada-based
company will be able to enter the U.S. pot market by 2022.
Regardless of whether you think their projections are overly
optimistic, the outlook for the industry is much more favorable
than it was just six months ago under a Republican-controlled
government, where there was little hope of marijuana reform
passing. Research company BDSA anticipates that the U.S. cannabis
market will be worth $34.5 billion in 2025 and will grow at a
compound annual rate of 18% until then. Holding pot stocks in your
portfolio today could set you up for some terrific
long-term growth in the years ahead.
Source - https://www.fool.com/investing/2021/04/27/this-upcoming-catalyst-could-send-marijuana-stocks/
OTC stocks that could benefit from SAFE include
ALKM, PAOG,
USMJ and
PURA.
SOURCE: David
Jagielski - The Motley Fool
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