The cannabis sector is taking a severe body blow because of election outcomes.
The big negative: Florida voters rejected Amendment 3, which would have legalized recreational use. Voters in North Dakota and South Dakota also rejected cannabis legalization.
These are definite setbacks. But investors are acting like the sector will be dead forever. I believe the outlook for the business of cannabis is not as grim as the sharp selling November 6 suggests.
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The main reason I’ll cite is that President-elect Donald Trump is on board with significant cannabis reform.
Trump Supports Key Cannabis Sector Reforms
Cannabis investors are suffering from a severe case of post-election amnesia. They’re forgetting that Trump supports key cannabis reform that the sector needs. Here are the three main examples.
Trump implicitly supports legalization.
We know this because Trump openly backed Amendment 3 in Florida, which would have legalized recreational use. He also clarified his policy stance during the campaign in a statement posted on social media. It said: “Someone should not be a criminal in Florida, when this is legal in so many other States. We do not need to ruin lives & waste Taxpayer Dollars arresting adults with personal amounts of it on them, and no one should grieve a loved one because they died from fentanyl laced marijuana.”
He also posted: “I believe it is time to end the needless arrests and incarcerations of adults for small amounts of marijuana for personal use. We must also implement smart regulations, while providing access for adults, to safe, tested product.”
Trump supports rescheduling.
This means the movement of cannabis to Schedule III from Schedule I under the Controlled Substances Act (CSA). The change would boost cannabis company cash flow and open the door for meaningful medical research.
During the election, Trump said medical cannabis is “absolutely amazing” for patients. He said his administration would “continue to focus on research to unlock the medical uses of marijuana to a Schedule 3 drug.”
Trump supports key banking reform.
The changes would allow banks to serve cannabis companies. A bill called the SAFER Banking Act has been kicking around Washington, D.C. for a while. Trump wants it to become law. During the election he posted on social media that he wants to “work with Congress to pass common sense laws, including safe banking for state authorized companies, and supporting states rights to pass marijuana laws, like in Florida, that work so well for their citizens.”
The big question is whether Trump will follow through. Certainly, he’s got bigger issues to deal with like budget issues and immigration. So, it may take some time. But historically, at least, Trump has attempted to follow through on stated policy objectives.
The bottom line: The selling in cannabis names November 6 feels like a gut punch. But the industry is not dead, and potential reforms and catalysts remain on the horizon, particularly given Trump’s stated support of reform. So, it makes sense to consider averaging down here. At the very least, it makes sense to avoid joining the negative crowd by selling.
In my November 6 Cabot Cannabis Investor update, I cite five other reasons why cannabis stocks look like a buy in the current weakness, and the best stocks and exchange-traded funds to consider. To find out more, subscribe here.
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