Wednesday was a major day for the cannabis industry from a political and legislative standpoint. For the first time in U.S. political history, Congress has approved a pro-cannabis piece of legislation that will move on to the Senate before entering into law.
Specifically, the SAFE Banking Act, a crucial law which would let federal banks and institutions work with state-based cannabis producers despite marijuana still being illegal on a federal level, has been approved today after first being introduced over six-months ago.
The bill, whose full name is the Strengthening the Tenth Amendment Through Entrusting States Act, would let financial institutions provide services to state-based cannabis companies, something which previously wasn’t available to these businesses.
The debate surrounding the piece of legislation has been split between pro-cannabis and anti-cannabis groups, with some arguing that passing this bill might signal a de facto legalization while others argued that the legislation doesn’t go far enough. However, the final vote was 321-103 with 10 abstentions in what was overall a bipartisan agreement.
However, the next stage for the bill will be for it to seek approval from the Senate, something which many experts think will be a far more challenging process then it was for the House of Representatives.
According to Ian Katz, an analyst at Capital Alpha Partners, the chances that this bill will be passed into law in 2019 has risen to 33%, as opposed to the 20% chance he gave earlier this year. “We remain skeptical for now,” the analyst said in a note but added that changes could improve “if we see meaningful signals from the Senate in the next few weeks.”
Previously, banks faced legal hurdles when it came to serving cannabis companies. With marijuana remaining illegal on a federal level, the current situation is that many of these companies operate largely in cash, making them potential targets to robberies and other crimes. Pro-cannabis groups argued that the SAFE act would help reduce crime by letting these companies operate business accounts with major financial institutions.
Even though there is still another major hurdle for the bill to pass through before it enters effect, the news that the House of Representatives approved the legislation came as a great piece of news for cannabis companies. Major producers such as Canopy Growth Corp (NYSE: CGC), Tilray (NASDAQ: TLRY), and Aphria (NYSE: APHA) were all up between 2% to 4% over the course of the day. Industry-wide benchmarks, such as the ETFMG Alternative Harvest ETF, also rose by 2.5% in response to the news.
It’s a welcome piece of positivity considering that markets overall have been fairly bearish. Major producers have seen their shares plummet not only in the past weeks following disappointing financial results, but even over the past few months with the industry as a whole seeing substantial declines.
Even with Canada’s 2.0 legalization looming over the horizon, investors aren’t as enthusiastic now as they were the same time last year when Canada was just about to Federally legalize cannabis plant sales.
While the mid-term prospect for cannabis stocks don’t seem to be that great at the moment, this piece of good news could be the start of a small bullish reversal in the sector, albeit a short one.