On Wednesday, the House of Representatives passed the Secure and Fair Enforcement (SAFE) Banking Act with heavy Republican support. If this bill becomes law, it will make it legal for banks to work with cannabis companies, even though marijuana remains illegal on a federal level.
To try to secure the SAFE Banking Act’s passage, the House included two sweeteners for Senate Republicans …
- A section preventing the return of Operation Choke Point. That was an Obama-era program that investigates banks for doing business with payday lenders and firearms dealers.
- A provision that protects financial firms that serve the hemp industry. That’s in there specifically to appeal to Senate Majority Leader Mitch McConnell. His home state, Kentucky, has a booming hemp industry.
We’ll see what the Senate does with it. If the Senate passes the bill, that could spark the next rally in cannabis stocks.
Even if SAFE doesn’t make it past its first stop — the Senate Banking Committee, which hasn’t marked up a bill in some 500 days — there are three other reasons why now is a good time to buy.
Reason No. 1: Cannabis 2.0
When I was in Toronto last weekend at the MoneyShow, Cannabis 2.0 was the talk of the town. This is when Canada legalizes marijuana extracts such as edibles, beverages and oils, which are currently illegal there.
Cannabis 2.0 starts next month. CEOs and other industry insiders at the Toronto MoneyShow said they expect to see new products roll out before Christmas.
And who doesn’t like yummy munchable treats under the Christmas tree? Now, with cannabis!
Insiders say they expect this will be a huge boost to sales — potentially DOUBLING the size of Canada’s cannabis market. And that optimism could help fire up stock prices.
Reason No. 2: Illinois Legalization is Coming Up; Florida is on Deck
On Jan. 1 of next year, Illinois will become the 11th U.S. state to legalize recreational cannabis. Illinois is the sixth-largest state in the country, so this opens up a big market. Medical marijuana has been legal in the state since 2013.
A study conducted by Colorado cannabis consulting firm Freedman & Koski projects that Illinois’ annual marijuana market could be between $1.69 billion and $2.58 billion.
And then there’s Florida. The hurricane magnet that’s home to Florida Man is also the third-largest state in the nation. Medical marijuana is already legal in the state, and it’s booming.
Senior citizens love pot! They use weed to ease the pain of what ails them. More than 266,000 Floridians had active cannabis cards as of last week.
Two different groups are pushing to put recreational marijuana on Florida’s ballot in 2020. It’s likely to get on the ballot, and likely to pass once it does.
Marijuana Business Factbook 2019 projects that Florida’s medical cannabis sales will hit $425 million to $525 million this year, up from $225 million to $300 million last year. Florida’s medical marijuana market could eventually hit $1 billion in annual revenue. If recreational cannabis is legalized, sales could expand to $4 billion to $5 billion a year.
That’s some serious money. And that could fuel the fires of optimism in the cannabis industry as well.
Reason #No. 3: Cannabis Stocks are at the Bottom of Their Channel
Here’s a chart of the ETFMG Alternative Harvest ETF (NYSE: MJ).
You can see pot stocks are channeling lower, still in a bear market, and 50% off the highs they hit in March. But they’re at the bottom of the trend channel, and oversold. That makes it likely we will see a bounce to AT LEAST the top of the channel.
Could such a bounce continue higher?
To answer that, let me show you two more charts that put the recent decline in pot stocks in perspective.
First, here’s a chart of a stock that ran into some trouble back in 1999. After soaring to over $100 per share, it fell to $14 per share.
That’s an 86% drop. Ouch! Boy, that thing must have been toast, eh?
What if I told you that stock was a little company called Amazon.com (Nasdaq: AMZN)? And this is what happened to Amazon longer-term …
If you squint on the left, you can still see the furious sell-off of the first chart. But that is dwarfed by the huge run-up that came afterward — a run-up that continues today.
So, what happened to change Amazon’s fortunes? And can we see those changes in cannabis?
Consumer attitudes changed. When Amazon was new, many people were hesitant to buy things online. But attitudes changed, and Amazon thrived.
What is changing for cannabis companies right now is their consumer base. More professionals and more women are buying as the stigma disappears.
Financial transactions changed. In Amazon’s case, people developed trust in using their credit cards in online transactions. Except my Mom. Tess Brodrick is 80 years old and when she wants something from Amazon, she calls ME to buy it for HER.
For cannabis companies, the big financial change is the SAFE Banking Act. Not only will this allow cannabis companies to get loans from banks, it will allow consumers to use credit cards and debit cards to buy pot. Right now, cannabis is a cash-only business.
Customer interface improved. Amazon’s website went through evolution after evolution. Now, it’s one of the friendliest and easiest places to shop.
I don’t know if you’ve been to a cannabis dispensary, but it’s not exactly Macy’s. It’s very restricted. I expect that to change over time, too. And sure, online shopping is coming. Heck, they have that in Canada now!
The fact is, cannabis is a very young industry. Things will change, and for the better. I’m not saying all my stock picks are the next Amazon. But one of them could be. And boy, wouldn’t that be sweet.
If you’re interested in finding out more about great cannabis stocks — near what is likely the bottom of the cycle — consider attending the New Orleans Investment Conference Nov. 1-4. It’s an event chock-full of great speakers, in a fantastic destination city to boot. I’ll be there, as will some of the sharpest minds offering amazing insight on gold, stocks, cannabis and more. Check it out right here.
All the best,
Sean Brodrick
Editor’s note: If you’re interested in the latest cannabis news and investment advice, check in here on Money and Markets every Saturday morning for Marijuana Markets: a POTcast, with Banyan Hill’s Anthony Planas. Click here to check it out.
