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Major Cannabis Reform Still on Track in D.C., Says Key Lobbyist

Despite the deep negativity swirling around marijuana stocks, one key lobbyist believes major cannabis reform remains on track in Washington, D.C.

Legalization of Marijuana, Cannabis Reform, U.S. Capitol, Washington, D.C.

These are dark days for cannabis investors, maybe the darkest ever.

AdvisorShares Pure U.S. Cannabis (MSOS), one of the key benchmark exchange-traded funds in the space, is down 85% in the past five years against market gains of 80%.

As has always been the case, the fate of cannabis stocks is much more about politicians than the leadership and results at cannabis companies.

President Donald Trump promised game-changing policy reforms during the election. But so far, despite a flurry of activity out of the White House on immigration and government efficiency, not a word on cannabis.

This has left cannabis investors with a severe case of FUD, or fear, uncertainty and doubt. Is it time to go along with this deep market negativity and give up on the sector?

Since politicians are the key here, I recently checked in with one of the key cannabis lobbyists in Washington, D.C., David Mangone of the newly formed United States Cannabis Roundtable (USCR), the biggest cannabis lobbying group in the Capitol.

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The bottom line: During the election, Trump fully supported key cannabis reforms like rescheduling and allowing banks to serve companies in the sector, and there’s no reason to think he has changed his mind.

“Trump is a very much a ‘promises made promises’ kept type of politician,” says Magnone. “I see no reason why he wouldn’t keep his promises on cannabis reform.” Magnone says his takeaway is confirmed in recent conversations with contacts in the administration and at key cannabis reform-related committees in the Senate and House.

As you struggle with daily declines in cannabis stocks, it’s worth remembering Trump never walked back his comments supporting cannabis reform. On the contrary, he reiterated them a few times during the election, though not since taking office.

The problem for impatient investors with itchy fingers is that it is tough to predict when reform will progress. The reason is simple. Cannabis reform has a lower priority than immigration reform and hunting down waste, fraud, and abuse in the federal bureaucracy. Patience required. But that does not mean it won’t happen. Here are some of this lobbyist’s thinking on key cannabis sector issues.

Rescheduling and the Future of Cannabis Company Cash Flow

The big potential federal reform for cannabis companies, of course, is rescheduling. This means moving cannabis to Schedule III from Schedule I under the Controlled Substances Act. This would neutralize an IRS rule called 280E which blocks companies from deducting operating expenses against sales of Schedule I substances.

Since this is so important, cannabis investors suffered yet another bout of depression when the Trump administration recently announced the appointment of Terrance Cole to head the Drug Enforcement Administration (DEA). Cole is a DEA lifer with a clear history of opposing cannabis legalization and use. The DEA plays a key role in rescheduling.

Concerns about Cole are overblown. After all, to me it makes sense that Trump would support a hard-liner on drug use, given his concerns about fentanyl abuse. And when it comes to cannabis policy reform, Trump seems like the kind of president who will stick to his agenda, and override “deep state” bureaucrats like Cole.

“President Trump supports moving cannabis to Schedule III, and his nominees are committed to enacting his agenda,” Magnone said in a USCR statement right after the Cole appointment. “We look forward to working with Trump administration officials, particularly at the Justice Department, to move our nation away from the failed policies of the past.”

Along these lines, as a cannabis investor, it might be a good idea to tone down your fears every time a cannabis media outlet digs up negative comments about cannabis from some newly appointed cabinet official.

Cassandras recently fanned fears about Trump’s commitment to cannabis reform when they dug up negative comments on cannabis from incoming Office of Management and Budget (OMB) head Russell Vought. He’s on record calling cannabis a “gateway drug” (a few years ago) and pushing back on state-level cannabis reform. The OMB can play a role in policy decisions, including on cannabis.

But concerns about Vought’s views on cannabis are overblown. “If the president decides he wants a particular policy, I can’t image that someone like Vought will be standing in the way,” says Magnone. “What’s different from previous administrations is that Trump will have the final say, rather than the bureaucrats and officials,” says Magnone. “I think what Trump says will be where the buck stops. Whatever comments there are that are inconsistent with Trump’s position, I don’t see them mattering all that much.”

Magnone likewise downplays the significance of a recent Senate bill that would block cannabis companies from taking federal tax deductions even if rescheduling neutralizes IRS rule 280E. The bill was introduced by Sens. James Lankford (R-OK) and Pete Ricketts (R-NE).

“These are two members of Congress that have never appreciated cannabis reforms and never will. They have deep personal opposition to the issue. Any time you see a bill that undoes progress at the state level, these two have their names on it. Them introducing a new bill on deductions regardless of rescheduling it is not terribly newsworthy for me.”

Given that so many states now collect lots of cannabis-related tax revenue because they have legalized, it will probably be challenging for the bill to get support from enough Republican Senators to pass. “Now that Republicans have a Senate majority, bills like this cannot be fully ignored,” says Magnone. “But it would be hard to get sixty votes to support something like this.”

Cannabis Banking Reform

Investors took it as a positive that support for reform that would allow banks to serve cannabis companies came up in a recent hearing on “debanking” of customers seemingly for political reasons. Politicians on both sides of the aisle expressed support for cannabis banking reform in the debanking hearing.

That was marginally positive. But the future here really depends more on what Trump does to follow through on his campaign backing of SAFER banking, as it’s called. “If the President renews his support, that will be a significant lightning bolt to move it forward,” says Magnone. “If he remains silent on it, it will be challenging to get Republican committees to take this up as a priority.”

Regrouped Cannabis Lobbying Efforts

The U.S. Cannabis Council (USCC) and National Cannabis Roundtable (NCR) recently united to create the sector’s new lobbying group called, the U.S. Cannabis Roundtable. This could be a positive for cannabis investors, because it may help the industry speak to politicians with a unified voice. The group has the financial support of the big five in the space, Cresco Labs (CRLBF), Curaleaf (CURLF), Green Thumb (GTBIF), Trulieve (TCNNF) and Verano (VRNOF). But we will have to wait until the end of the first quarter to learn more from USCR filings about the group’s financial strength.

Meanwhile, USCR will keep industry heavyweights as advisors, like former Republican Colorado Senator Cory Gardner. David Culver from USCC will serve as lead lobbyist, and the new group has also hired Bryan Lanza a partner at Mercury Public Affairs. Lanza is a Republican strategist who has served as a strategist and communications official for Trump.

Given that the future of cannabis stocks and the cannabis industry lies precariously in the hands of politicians, USCR’s efforts and financial strength are worth tracking.

To learn more about how we’re investing in cannabis names now, subscribe to Cabot Cannabis Investor today.

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Michael Brush is an award-winning Manhattan-based financial writer who writes a stock market column for MarketWatch. He is editor of Brush Up on Stocks, an investment newsletter. Brush previously covered the stock market, business and economics for the New York Times, the Economist Group, MSN Money, and Money magazine.