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Cannabis stocks have seen a lot of price movement thus far this year. It is natural to wonder where they are going in the coming months.
Cannabis and the Law
In large part, politics is behind this. For one of the big problems of the state-legal cannabis industry in the United States, a problem that can only be solved by action in Washington DC, may at last be addressed in the months to come. Banks might be explicitly allowed to offer their services to legal cannabis businesses.
Banks haven’t wanted to do this. One can hardly blame them: they are regulated and insured by the federal government, not the states, and the federal government still regards cannabis as a Schedule 1 substance. Cannabis is regarded not only as an illicit and readily abused substance, but one with no accepted use in medical treatment.
What is the consequence for a cannabis provider working to stay within the rules of what his state has told him is a lawful business, of his inability to open a checking and savings account for that business? For many the consequence is that the provider or manager keeps a lot of cash on premises. Consumers are asked to pay in cash, workers are paid and upstream providers are compensated in the same.
The consequences of that includes the danger of violent crime, and these shops become high opportunity targets for predators.
This has constraining effects, direct and indirect, on the development of the whole industry. The recent change in administration in Washington is taken by many as a sign that something important may be about to change for the industry. Even if it does not repeal the Schedule 1 treatment, the Biden-Harris administration may support licit banking for the state-legal industries.
Expectations of a Green Wave
Cannabis stocks stand to benefit from that kind of expectation. Consider Curaleaf. It is a Canada based vertically integrated company — that is, a company with interests from the farms to the stores — operating in 23 of the states in the United States.
There are obviously other factors in its valuation. But in early November, when counting began in the latest national election in this country, its price was $10. By the time two Democratic Senators were elected in a special election in Georgia in January, it was selling for more than $14. At least one stock analyst wrote at this time that, though there hadn’t been much of a “blue wave,” the two new Senators meant that the Democrats would control the Senate, and that this might produce a “green wave,” a positive vibe for cannabis stocks.
Curaleaf’s rally continued from there, reaching $17 by February 9. Since then the price has declined somewhat. It is likely the market was incorporating into the price the growing realization of the obstructions in the way of the Biden program.
Not Just a Stock Price
In a less tangible way, the friendlier political climate will likely contribute to another development: consolidation. Before the pandemic messed up calculations, TerrAscend (TRSSF) bought Ilera Healthcare of Pennsylvania. It has since become a dominant player in that state. With the trauma of the pandemic receding, more consolidation is a fairly easy prediction.
But even pending further political developments, in operational terms a lot of cannabis concerns are doing very well. It is important to remember for example that the above mentioned Curaleaf (OTCQX: CURLF) is not just a stock. It is an operating company. And in that capacity, it is on course to record more than $1 billion in revenue over the next 12 months. That sort of number will surely show up in equity valuation.