Pot stocks spike,
‘Obstacle’ to legalization
Investors in North American cannabis companies were still digesting the results of Tuesday’s U.S. midterm elections — which saw voters in three states legalize cannabis in some fashion — when the sudden resignation of U.S. Attorney General Jeff Sessions sent shares across the sector soaring late Wednesday afternoon.
“The entire space is now rallying on the Sessions news,” noted Russell Stanley, Managing Director of Equity Research at Beacon Securities Ltd. “The industry viewed Sessions as a major obstacle to cannabis legalization and so this risk has now been removed — the industry, especially companies that derive bigger operational benefits from the U.S., are responding to that.”
In January, Sessions issued a memo on marijuana enforcement that rescinded the Obama-era policy of non-interference with marijuana-friendly state laws.
That memo unleashed a bipartisan backlash, resulting in the STATES Act — a bill introduced by Democratic Sen. Elizabeth Warren and Republican Sen. Cory Gardner that pledged to prevent federal interference with states that have legalized cannabis.
“The Sessions memo actually galvanized the legalization movement and got them to circle the wagons, which completely backfired on Sessions,” Stanley added.
Shares of firms on both sides of the border charted significant gains it was revealed Sessions was out.
Among the biggest gainers where Vancouver-based Tilray, whose Nasdaq-listed shares soared almost 30 per cent for the day, while California-based MedMen Enterprises rose as much as seven per cent on the Canadian Securities Exchange. Canopy Growth Corp., and Aurora Cannabis both saw their share prices rise roughly seven per cent in the latter part of the day, while Aphria rose by almost five per cent.
The gains came after voters in Michigan had voted to legalize cannabis for both medical and recreational use, while those in Missouri and Utah approved allowing the sale of medical pot.
As a result of the votes, recreational cannabis will soon be legal in 10 U.S. states, while medical cannabis will soon be legal in 33 plus the District of Columbia.
While Sessions’ departure was a key win for cannabis investors, a loss by another Sessions could have a bigger impact, says GMP Securities analyst Martin Landry.
Texas Republican Pete Sessions lost his seat in the U.S. House of Representatives to the more cannabisfriendly Democrat Colin Allred, a former NFL player, one of several wins that saw the Democrats regain control of the House.
Pete Sessions had headed the House Rules Committee and had actively blocked the House from voting on marijuana-related amendments.
“A Democratic committee head will have a significant impact on cannabis reform, and possibly speed up the approval of the STATES Act,” Landry said.
While the Democratic win could also accelerate the chances of federal legalization in the U.S., some prefer the current pace of incremental gains.
“I hope they won’t legalize federally anytime soon,” said Marc Lustig, CEO of Canadian-based Origin House (formerly CannaRoyalty).
Origin House operates primarily in California, where it supplies branded cannabis products to licensed dispensaries. Companies like his are currently among the only ways investors can gain exposure to the U.S. cannabis industry.
“There’s no question that when federal legalization happens in the U.S., massive conglomerates like pharmaceuticals, the tobacco and alcohol guys will all start buying up everything possible. The fact that it remains the way it is now, has given us free rein to build our chess board,” Lustig said. “If the STATES Act bill gets passed, that’s about as perfect as it gets for us.”
It is unclear, however, whether implementation of the STATES Act will allow U.S. pot firms to begin listing on federal stock exchanges — the main disadvantage they have now, compared to their Canadian counterparts.
“If you’re listed on the TSX, Nasdaq, NYSE, or any one of those big exchanges, you cannot touch the plant in the U.S. I am not sure the STATES Act will change that — it will just mean that the individual states have full right to determine how cannabis can be consumed and moved within its borders,” Landry said.
For licensed producers such as Aurora Cannabis, the real victory lies in who will be able to get a first-mover advantage on the medical market south of the border.
“We are poised and ready to enter the U.S. market as soon as it is legal to do so,” said Cam Battley, Aurora’s chief corporate officer. “What we will not do is put our NYSE or TSX listings at risk — but the instant it is deemed allowable, whereby we will not be violating U.S. law, we will enter.”