Given that the majority of Americans on both the left and the right favor cannabis legalization, it’s no surprise that marijuana has emerged as a campaign issue.
Therefore, it makes sense to think about election outcome scenarios and what they mean for cannabis investors.
Big picture, no matter what happens in the presidential election, cannabis wins. That’s because both candidates support major cannabis reform in one way or another. But some outcomes are better than others. Here are the three main scenarios, from best to worst.
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3 Potential Election Scenarios and the Impact on Cannabis Stocks
1. Vice President Kamala Harris and Minnesota Gov. Tim Walz (D), take the White House, and Floridians vote to approve recreational-use cannabis.
This is the best outcome. It implies very significant reform at the federal level. And the country’s third-biggest state with huge tourist traffic will launch recreational-use sales. A Harris victory and a Florida defeat would be a less bullish but still a positive variant of this outcome. That’s because federal reform like rescheduling and outright legalization are more significant than rec-use legalization in Florida.
Polls suggest Floridians will approve legalization of recreational use, but it looks like the vote will be close. Cannabis companies have been betting big on the change, which also suggests it might happen. The third-quarter store count was up 43% to 665 from 464.
Harris put legalizing cannabis in the number six slot out of fourteen on her to-do list of policy reforms she hopes to achieve if she becomes president. Walz also favors legalization.
2. Donald Trump takes the White House, and Floridians approve recreational use.
This would still be bullish for cannabis investors. Trump favors significant cannabis reform. He implicitly supports federal-level legalization, because he backs Florida’s Amendment 3, which would green light rec-use legalization.
Trump explicitly supports rescheduling cannabis to Schedule III from Schedule I under the Controlled Substances Act (CSA). Of all the possible cannabis reforms on the horizon, this is the big one. It’s bigger than even Florida legalization or banking reform that would allow more banks to serve cannabis companies.
The reason: Moving cannabis to Schedule III would neutralize an IRS provision that blocks the deduction of operating expenses against revenue from the sale of Schedule I substances. The change would instantly give cannabis companies a cash injection that would improve cash flow and earnings per share in a big way.
Trump says he favors moving cannabis to Schedule III because it would allow a lot more medical research. Trump cites anecdotal evidence from contacts who tell him cannabis is useful in treating various ailments.
Trump’s running mate, Sen. JD Vance (R-OH), favors letting states decide on legalization. That’s less of a ringing endorsement of reform than Trump’s policy positions. But it’s the president who sets the tone on policy issues.
3. Trump takes the White House and Florida rejects legalization.
This would be a mixed outcome, but still a positive scenario. That’s because federal change in the form of rescheduling or a “Cole memo” statement that the feds won’t enforce cannabis law in legalized states is far more important to cannabis than Florida.
The big question is how sincere Trump is about cannabis reform. Democrats allege he’s merely jumped on the bandwagon to garner votes. It’s tough to know what’s true here, but his explicit backing of Amendment 3 in Florida suggests he is sincere.
Certainly, any new administration will likely face some serious budget issues at the outset, and Trump has obviously prioritized immigration. But his desire to see more medical research suggests that, like President Joe Biden, Trump would pressure the Drug Enforcement Administration and Department of Justice to reschedule. In short, rescheduling seems de-risked because Trump and Harris favor it.
Congress
Note that in each of the scenarios above I have not addressed outcomes in Congress. I left that out for simplicity. But also, the analysis here is fairly obvious. Clearly, a Harris victory plus a Democratic sweep in Congress would be the best outcome. The bullishness of a Harris victory diminishes in scenarios where Republicans take one or both arms of Congress. A Trump White House victory and Republican sweep of both branches of Congress would be less favorable. Democrats would have no committee leadership positions to use to advance legislation like banking reform.
For more analysis on how the Florida rec-use legalization vote will go, and the cannabis companies with the biggest exposure to the state by store count and sales volume, subscribe to Cabot Cannabis Investor here.
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