Cannabis stocks are drawing interest on speculation that regulation may soon replace prohibition of marijuana. Tilray (NASDAQ:TLRY), Aurora Cannabis (NASDAQ:ACB) and Canopy Growth (NASDAQ:CGC) all rose sharply Dec. 1. So did Curaleaf Holdings (OTCMKTS:CURLF), a major producer of edible marijuana, despite a report on Los Angeles middle schoolers possibly overdosing on edible cannabis in class.
President Joe Biden recently issued pardons on federal possession convictions and urged for pot be taken off Schedule 1, where it’s classed alongside heroin as a dangerous drug with no benefits.
SAFE and HOPE
Cannabis stocks enjoyed a vogue in the late 2010s after Canada legalized marijuana. But stocks created in the wake of that have been horrible investments.
For instance, Constellation Brands (NYSE:STZ), a beer and wine distributor, has had a major interest in Canopy Growth since 2018. The value of that investment is down more than 80%. Even in states where marijuana is legal, like California, illegal growers dominate the market thanks to the cost of regulation.
The industry is now scrambling to pass cannabis-related bills before year-end. Republicans take control of the House in January, and that party is suspicious of legalization. Democrats are focused on getting marijuana cash flow into communities ravaged by the drug war.
The industry’s focus is on the SAFE Banking Act. This would let cannabis stores operate within the banking system. They can’t right now, meaning stores are loaded with cash and are a prime target for criminals. SAFE may be combined with the HOPE Act, which would expunge cannabis convictions that fall disproportionately on people of color.
One bill to help the industry has already passed. H.R. 8454 will let researchers study the risks and benefits of cannabis.
What Happens Now for Cannabis Stocks?
If Congress doesn’t act this month, the current bullish move in cannabis stocks will be a bear trap. Even if reform passes, the industry must still find a way to beat illegal growers in the market.
On the date of publication, Dana Blankenhorn did not hold (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.