A new bill introduced by a House Republican and strong earnings are causing big moves.
The U.S. cannabis industry remains one of the most interesting investing opportunities today. Although the companies still operate in a technically illegal business, most U.S. states have legalized cannabis, at least on a medical basis, and over two-thirds of U.S. citizens are pro-legalization.
Those numbers make it seem as if federal prohibition will be repealed at some point. Yet while many had thought action would occur earlier this year, cannabis legalization measures have stalled in Congress. With hot money pouring into U.S. cannabis stocks after Democrats took control of Congress in January, that money has since grown impatient and left the space throughout the spring and summer. No wonder the AdvisorShares Pure US Cannabis ETF (NYSEMKT:MSOS), an ETF that owns most of the leading U.S. multistate operators (MSOs), is down 14.9% on the year and a stunning 42.6% from all-time highs set back in February.
But after a long slump, could these stocks be in for liftoff once again? Many cannabis stocks have surged this month, with MSOS up 14.6% just through the first two weeks of November.
A Republican legalization bill surfaces
Cannabis legalization is one of the rare issues that has bipartisan support, but the two parties have different preferred ways of implementing those measures. Democrats in the Senate released a draft proposal to legalize cannabis in July, but cannabis stocks sank on the news because many thought the proposals were too aggressive to pass. Mainly, high excise taxes up to 25%, with a large portion of those funds going to a social justice fund for communities of color, were thought to be elements unlikely to draw needed Republican support.
But on Nov. 5, Marijuana Moment picked up on a scoop that Rep. Nancy Mace (R-S.C.) was circulating a draft of her own legislation. Cannabis stocks climbed by double digits on the news, as the prospect for Republicans to join the congressional effort led to optimism over legalization.
But the unveiling of the bill was a "sell the news" event
Yet after a huge run in which several leading pot stocks were up 20%, 30%, or even 40% on the news of the proposal, most sold off when Mace's bill was unveiled two weeks later.