Interest in recreational cannabis is spreading in the U.S. With voters pushing states for medical and adult use legislation, Vermont became the first to decide the issue at the state capital when the state legislature voted in favor of legalization in 2018. Now a growing number of states are making efforts to do the same.
Cannabis stocks began 2019 on the rise, with shares of U.S.-traded companies like Canopy Growth Corp CGC -- up nearly 60 percent-- and Aurora Cannabis Inc ACB -- up 30 percent -- making huge gains. 420 Investor’s Alan Brochstein notes a correlation between the two.
"Over time, news about more states legalizing definitely expands interest in the publicly traded stocks," he said.
The big story is activity on the East Coast, Brochstein said. Legalization talk is certainly buzzing in the east, especially New England, where each state has recently discussed adult use legislation in one form or another.
“Everyone sees the numbers in Massachusetts in the early days, and they want that tax revenue and the jobs.”
'Money Flows' As States Legalize
Andrew Berman, CEO of FLRish, the parent company of Harborside, explained how regulatory efforts impact the capital markets.
"As more states accept cannabis, as regulatory environments become more favorable [and] more opportunities open up, investors feel more confident that their investments will show returns, so money flows," Berman said
Pullbacks can occur when efforts create a more chilling climate — for example, changes in government leadership or enforcement efforts, he said.
Lawmakers beyond the Northeast have recently introduced recreational cannabis legislation.
In Pennsylvania, a House bill was unveiled in early February that would both legalize adult use marijuana and expunge cannabis criminal histories and release people incarcerated under the previous law.
Proponents of the law estimate that Pennsylvania could generate between $500 million and $600 million in revenue from legal cannabis.
In late January, West Virginia delegates introduced a proposal that would decriminalize cannabis while allowing production and sales. The initiative is an effort to establish a tax structure for marijuana while regulating the market without the need to jail a person. The push to develop a West Virginia marijuana marketis also seen as an opportunity to create jobs in one of the poorest states in the country.
In 2018, Michigan became the 10th state to legalize adult use cannabis. The Midwest could soon become a hotbed of activity for the cannabis industry.
In Illinois, several state senators see a significant opportunity in marijuana. Like Pennsylvania, this opportunity appears to center on revenue and reform.
It's estimated that the state could earn between $350 million and $750 million in annual taxes from cannabis. In turn, some tax revenue would be allocated to impoverished neighborhoods that are often the most affected by prior drug laws.
Minnesota has also taken steps to expand cannabis access. In late January, lawmakers submitted a bill that would allow citizens to cultivate, consume, use and possess cannabis by 2022. Many predict that the bill will face steep opposition in the Republican-majority state senate.
The proposed bill did earn quite a bit of media attention due to its name: HF420.
At the federal level, the recently introduced S. 420 aims to decriminalize cannabis while allowing it to be taxed and regulated. The measure was submitted by Democratic Sen. Ron Wyden of Oregon.
New Mexico also saw legislation submitted in late January. In its case, HB356 would impose a 9-percent surtax on commercial sales while allowing counties to opt out.
The bill appears to be able to garner bipartisan support if agreements can be reached regarding child access and intoxicated driving. Like West Virginia, New Mexico is one of the nation's poorest states and could see significant gains if legislation were to pass.
Just this week, Hawaii saw progress toward enhancing its marijuana program to include recreational uses. In a first for the state, a legislative committee passed a legalization bill. The unanimous vote now moves the measure to the next committee.
Will The Market Follow?
With legalization efforts being made across the country, cannabis investment news has been mostly positive. This includes the only pure-play cannabis ETFMG Alternative Harvest ETF MJ, topping $1 billion in assets under management. The ETF is up 41 percent through the first few weeks of 2019.
Could a cannabis bubble be nearing its burst point? Not at the moment, Brochstein said.
"I am bullish on the sector and always on the lookout for signs of overheating. I am not seeing them now."
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