Marijuana stocks are going up in smoke amid speculation that the Secure and Fair Enforcement (SAFE) Banking Act will fail to pass for the third time.
Indeed, marijuana stocks are in free fall this week, likely in response to reports that the SAFE Banking Act will be excluded from a must-pass federal spending bill. Companies like Trulieve Cannabis (OTCMKTS:TCNNF) and Curaleaf (OTCMKTS:CURLF) each fell less than 2% Wednesday, after shedding more than 15% of their respective stock values earlier in the week.
The act, if it had passed, would’ve allowed cannabis companies access to banking services. Currently, due to marijuana’s federal classification, marijuana-based businesses are excluded from most major banking services, despite being at least partially legal in 37 states.
The act has been a point of controversy since it was first introduced in 2019. Currently, banks and other financial institutions could face charges as grave as money laundering for accepting funds derived from the cannabis industry, given its federal status. This marks the third time in 2022 the act has failed to pass alongside a larger piece of legislation.
This news only further puts a damper on cannabis stocks, which have been burning out through much of the year.
What else do investors need to know about the cannabis industry?
Marijuana Stocks Still Floundering Despite Massive Potential
Cannabis companies have long been considered a high-growth golden child of stocks, with little to show for it. Indeed, marijuana’s upside potential has always made the industry tempting to many investors, despite its current unproven status. According to Matt Karnes, founder of GreenWave Advisors, a cannabis consultancy business, federal legalization is one of the biggest roadblocks to the cannabis industry’s potential to flourish:
“When prohibition ends and the added costs specific to prohibition are no longer required, the free cash flow profiles for most cannabis companies will accelerate significantly and share prices will likely surge.”
This year in particular, many of the biggest cannabis stocks have experienced a notable slump. Companies like Canopy Growth (NASDAQ:CGC) and SNDL (NASDAQ:SNDL) are down 75% and 65%, respectively, in a terrible year for the industry.
The SAFE Banking Act would be an important step for many investors toward the massive upside many analysts have long awaited in cannabis.
On the date of publication, Shrey Dua 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.