Clever Leaves (NASDAQ:CLVR) stock gained 36% today on news of a bill to decriminalize cannabis. Sen. Majority Leader Chuck Schumer and Sens. Cory Booker and Ron Wyden have teamed up to bring the legislation forward. This report comes via Bloomberg, which spoke to someone with knowledge of the matter. According to this source, though, “the legislation faces long odds in the evenly divided chamber.”
What This Means for CLVR Stock
CLVR stock hasn’t seen a positive catalyst in months. Though it spiked in late March after reporting strong fourth-quarter earnings, it plunged back down just as quickly. Since then, the stock has struggled against bearish sentiment and larger competitors. But as a U.S.-based cannabis producer, investors are betting it will win if legislation passes.
Bloomberg reports that “The Cannabis Administration and Opportunity Act would remove marijuana from the list of drugs covered by the Controlled Substances Act. States, however, can still maintain and create prohibitions on production and distribution of marijuana.”
The outlet also notes, though, that getting this sure-to-be controversial bill passed in a divided house won’t be easy. For most legislation the required number of votes is 60. And while seven in 10 U.S. adults support the mass legalization of cannabis, according to FiveThirtyEight, many politicians still oppose it. More than 200 House Republicans voted against the Marijuana Opportunity Reinvestment and Expungement (MORE) Act earlier this year. And just a few months later, there’s little reason to suspect that this new bill will garner more support. It doesn’t help that even a few Democrats opposed the last attempt to legalize cannabis at the federal level.
Investors are still bidding up cannabis stocks on high hopes, though. Akerna (NASDAQ:KERN) gained nearly 22%, enjoying almost as good of a day as CLVR stock. Both U.S. companies would likely have an edge on their Canadian peers such as Tilray (NASDAQ:TLRY) and Cronos Group (NASDAQ:CRON), whose gains today have not been as impressive. But it’s clear that no matter what, the bill is facing some long odds.
The Bottom Line
While it’s easy for this type of legislation to push cannabis stocks up while the news is trending, buyers should be beware. And unless Wall Street is presented with reason to believe that the bill can successfully pass soon, shares are likely to nosedive.
Even if the bill does pass, investors should still approach CLVR stock with caution. It is a micro-cap stock in an unstable sector that hasn’t demonstrated any significant growth potential in months. These quick bursts generated by breaking news are exciting. However, they don’t always make for the type of catalyst that should trigger a buying spree.
For now, investors should wait and watch for updates on the bill.
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On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.