One of the biggest hurdles for the marijuana industry is that marijuana is classified as a Schedule I controlled substance by the Drug Enforcement Administration. As long as it's on that list, using and even researching marijuana will remain next to impossible in the U.S. and many companies, including banks, will continue to shy away from doing business with cannabis companies.
For there to be meaningful marijuana reform, it needs to first be removed from the Schedule I list. And there's optimism that the removal could happen a lot sooner than later. While that doesn't mean that full marijuana legalization will follow, it could, however, be the first step toward decriminalizing it.
New bill to decriminalize pot on its way to the House
On Wednesday, the House Judiciary Committee approved the Marijuana Opportunity Reinvestment and Expungement (MORE) Act. The bill would not only remove marijuana from the Schedule I classification but it would also decriminalize it at the federal level. Although the bill will not legalize marijuana, even decriminalizing it would still be an important step forward for the industry. Under the bill, individual states would also be free to make their own rules for marijuana, which is similar to what the STATES Act would accomplish.
After recently passing in the House, the SAFE banking bill could make it easier for banks to do business with cannabis companies. However, the MORE Act goes the furthest in terms of marijuana reform and would be quite a significant development for the industry.
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Passing it into law is still an uphill battle
The MORE Act will likely see strong support from a Democrat-controlled House of Representatives. However, there are still two reasons the bill may not become law, at least not imminently.
For one, even if the bill does pass the House, the bigger battle will likely be in the Senate, where it will have to win over the support of Republicans, who have long been opposed to legalizing marijuana, with some believing that it is a gateway drug. The other challenge is that the bill may be trying to do too much. The more complex a bill is, the more items there will be to debate about, which could stall the process. At a minimum, there's a good chance that the process could drag out for months, perhaps longer. The worst-case scenario is that the bill ends up going nowhere or gets killed altogether.
Nonetheless, it's still a good sign for the industry that lawmakers are focusing on marijuana reform. While the best outcome for the industry would be decriminalizing pot, even passing the STATES Act or SAFE Banking Act would be significant steps forward for cannabis companies that are based in or want to do business in the U.S.
The MORE Act could make the Acreage-Canopy Growth deal a reality
Earlier this year, Canopy Growth (CGC -3.01%) made headlines when it announced that it was planning to buy Acreage Holdings (ACRGF). But although the two companies reached a deal, the caveat is that it would not be able to go through until marijuana becomes legal federally. If Canopy Growth were to complete the deal any earlier, its operations would then be in violation of U.S. laws and the company would run into trouble with both the TSX and NYSE, where its shares are currently traded. The lack of federal legislation also prevents Acreage from trading on a major U.S. exchange as well. Passing the MORE Act could certainly make the deal between the two companies a possibility, and even the STATES Act could suffice.
The problem has always been the timetable for progress on marijuana reform at the federal level in order for the deal between the two companies to come to fruition. While it may appear inevitable that marijuana reform is on the way, it could still be years before it happens. And until then, it's going to continue being a struggle for cannabis companies to operate in the U.S.
Although 11 states have legalized marijuana for recreational use, there needs to be progress federally for companies to be able to transport marijuana across state lines. If a company wants to expand into a new state, it has to either acquire a business there or start one up itself as it cannot simply just ship products from one state to another.
What does this mean for investors?
Cannabis investors shouldn't get too excited about the MORE Act just yet as there could still be a long road ahead before a significant piece of legislation is able to pass both the House and Senate. But if it does, there could be a whole lot of activity in the industry.
Not only could there be more companies in other industries that decide to jump into cannabis, but cannabis companies in North America would see even greater opportunities for growth. And that would likely send marijuana stocks soaring, again.
If Canopy Growth and Acreage are finally able to join forces, that could lead to even more expansion in the U.S. by the two companies as competition in the industry would likely ramp up.
