The Senate’s federal cannabis legalization bill just dropped – and it’s bigger than we dared imagine. Here’s what you need to know…
For months now, you’ve heard me talk about the intense urgency in the Senate to introduce some form of federal cannabis legislation.
You listened patiently to my Q&As where I pontificated about what that legislation would try to tackle…and watched while I speculated out loud with the CEOs of leading multistate operators (MSOs) such as Jushi Holdings Inc. (OTC: JUSHF) and Ayr Wellness Inc. (OTC: AYRWF) about the path of least resistance.
“Full-on descheduling isn’t necessary,” I said. “Just give safe harbor to banks and stock exchanges,” I proclaimed. “States are doing most of the work driving sales, so all cannabis companies need is full access to capital markets,” and so on.
After all, cannabis is de facto legal in the United States anyway. The biggest constraint holding back MSOs and their stock prices is lack of investment. With Big Money players locked out, cannabis stocks remain undervalued.
But with some safe harbor language for exchanges, those Big Money institutional investors would have a way in. And with that door open, you could expect the rush of money to send stock prices of the leading MSOs at least 5-to-10-times higher than what you can get in for today.
Well…mea culpa. I was wrong. Too conservative in my approach.
Because just yesterday, Senate Majority Leader Chuck Schumer (D-NY), Senate Finance Committee Chairman Ron Wyden (D-OR), and Sen. Cory Booker (D-NJ) revealed their draft cannabis reform legislation – and I was blown away by what it covered.
The Cannabis Administration and Opportunity Act Is Finally Unveiled
The draft Cannabis Administration and Opportunity Act was unveiled at a press conference yesterday. And at 163 pages, it covers a lot of ground. A public comment period is now open until September 1 – meaning that this will not be the final version of the bill. But we can assume it will stay close to its current form.
The draft legislation allows for federal taxes. It addresses social equity. Heck, it even opens cannabis up to interstate commerce so growers in California would be able to ship product to Massachusetts without worrying about which states they cross in the process.
But the most important move made in the bill is removing cannabis from the federal list of controlled substances. The bill deschedules cannabis completely. It removes cannabis regulatory authority from the Drug Enforcement Administration (DEA) and places it firmly under the Food and Drug Administration (FDA) and other agencies.
And with cannabis no longer a controlled substance, all other roadblocks get swept away.
IRS rule 280E would no longer apply, which means MSOs need no longer labor under confiscatory tax rates up to 70%. (I go into more detail on 280E and its implications in my latest State of the Cannabis Industry report, now available for NICI Membership subscribers.)
Banks would be freed from onerous anti-money laundering (AML) checks and procedures, meaning they could more easily – and cheaply – provide the full suite of banking services such as corporate checking and lending.
Credit card companies could now process cannabis purchases, clearing the way for dispensaries to accept credit card payments and fueling the demand for legal cannabis purchases even further.
And the New York Stock Exchange (NYSE) and Nasdaq would be free to open the gates to stock markets moving $53 trillion in capital each year.
So much for my presumed path of least resistance. This bill knocks aside all those roadblocks.
Legal cannabis has stepped into a New World. And, so, too, has anyone owning today’s top cannabis stocks…
What Comes Next as Legal Cannabis Enters a Whole New World
When exchanges open for business, you can expect a surge of up-listings as leading MSOs leap from thinly traded over-the-counter markets (OTCMKTs) to the global capital market stage.
And given their top-line revenue growth exceeding 50% per year and soaring profitability, the investment flowing down the boulevard of money will drive valuations for these market-leading cannabis players from an average sales multiple of 7X to well over 15X, or even 20X.
That alone is enough to send Trulieve’s stock from less than $40 to well past $100. Curaleaf could surge from around $14 to well past $30…and Jushi from $6 to $20 – all within the year.
But there’s more.
With state barriers knocked down and interstate commerce open, MSOs need no longer maintain expensive operations in every state in which they operate. They could ship their products across borders. They could expand their distribution channels across the country to all states that allow sales. They could leverage their operations. And they could use their edge in raising capital to expand their market dominance.
Plus, with an “All Clear” from the federal government, you can expect the pace of state-by-state recreational laws to accelerate even faster than what we’ve witnessed to date – putting a $100 billion cannabis market in the U.S. well within reach.
Heck, even exports to international markets could now become possible.
But Trulieve, Curaleaf, and Jushi won’t be the only big winners. To get the full rundown of the cannabis stocks best positioned to benefit from the New World of Cannabis Investing, you need to go here now to learn how to join NICI Membership today.
We’ve separated the winners from the wannabes, and NICI Membership subscribers know exactly who those winners are.
The move made with the Cannabis Administration and Opportunity Act was even bolder than I dared predict – which means the massive gains in store for leading cannabis stocks will be bigger and come faster than even I expected.
For anyone looking for the right time to make their move into cannabis, the time for waiting has passed.
Executive Director, National Institute for Cannabis Investors
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July 15 2021