Please ensure Javascript is enabled for purposes of website accessibility

Major Federal Cannabis Reform Could Be on the Way: Time to Load Up on Marijuana Stocks?

By Keith Speights – Jul 21, 2021 at 5:52AM

Key Points

  • Senate Majority Leader Chuck Schumer recently unveiled proposed legislation that would decriminalize marijuana at the federal level.
  • This bill would likely provide a huge catalyst for many marijuana stocks, but passing the bill in the Senate won't be easy.
  • Even if the proposed legislation fails, there are still some cannabis stocks worthy of investors' consideration.

Motley Fool Issues Rare “All In” Buy Alert

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Don't get the cart before the horse.

In the quest to change U.S. cannabis laws, the House of Representatives hasn't been much of a problem. The challenge has always come with the U.S. Senate. 

Last week, though, Senate Majority Leader Chuck Schumer unveiled proposed legislation to decriminalize marijuana at the federal level that he wants to bring before the Senate. The bill already has the support of Senate Finance Committee Chair Ron Wyden (D-Ore.). 

With the potential for major federal cannabis reform on the way, is it time to load up on marijuana stocks?

Hand holding a cannabis leaf in front of a U.S. flag.

Image source: Getty Images.

Lots of potential winners

As you might expect, there are lots of potential winners if marijuana is decriminalized at the federal level in the U.S. Canadian cannabis producers have long desired to enter the enormous market south of the border. However, they can't do so and list their shares on major U.S. stock exchanges while cannabis remains illegal at the federal level.

If that roadblock is removed, Canopy Growth (CGC 4.57%) stands out as an especially likely beneficiary. Canopy already has an option to acquire U.S.-based cannabis operator Acreage Holdings. It has a big partner (and largest shareholder) based in the U.S. -- Constellation Brands. Canopy could be the first to jump into the U.S. market if Sen. Schumer's proposed bill becomes law.

Don't overlook the opportunities for companies that currently operate in the U.S., though. Cresco Labs (CRLBF -2.35%), for example, ranks as one of the most attractively valued multistate cannabis operators. One reason why Cresco's stock is cheap compared to most Canadian pot stocks is that the company can't list its shares on a major U.S. stock exchange.

It's a similar story for Trulieve Cannabis (TCNNF 0.19%), one of the biggest U.S. cannabis operators. If Trulieve traded at the same price-to-sales multiple that Canopy Growth does, its market cap would top $10.3 billion -- a lot higher than its current market cap of $6 billion.

The Senate snag

Sen. Schumer's support for federal cannabis reform removes one major obstacle from the past. When the GOP controlled the Senate, former Senate Majority Leader Mitch McConnell wouldn't even entertain the thought of bringing a bill for major cannabis reform to the Senate floor.

However, there's still a big potential snag in the Senate. Any proposed legislation that comes before the chamber can be held up by just one Senator who opts to use the filibuster. As a result, Sen. Schumer needs 60 votes for his bill to ensure that it goes through. It's unclear that those votes could be scrounged up right now. 

The Senate is split 50-50 between Democrats and Republicans (including two independents who line up with Democrats). That means 10 GOP votes would be required to prevent a filibuster if all Democrats and independents voted as a bloc.  

Polls show that the American public supports cannabis reform. Thirty-five states have legalized medical and/or recreational marijuana. However, there's no guarantee that enough Senators will vote along with their constituents' views on this issue.

Don't back up the truck just yet

With such political uncertainty in the Senate, investors probably shouldn't back up the truck and load up on marijuana stocks just yet. That doesn't mean, however, that there aren't individual stocks worthy of a hard look.

I've already mentioned two cannabis stocks that look like good picks regardless of what happens in Washington, D.C. Cresco Labs continues to expand in its core markets. It has also moved into new states, notably including Florida and Ohio.

Trulieve already dominates the medical cannabis market in Florida. The company is poised for a bigger and better future with its pending acquisition of Harvest Health & Recreation.

Another stock that I especially like is Innovative Industrial Properties (IIPR 1.86%). The company is a real estate investment trust (REIT) that focuses on the U.S. medical cannabis market. In some respects, IIP could be better off if federal cannabis reform isn't passed. However, even if the proposed legislation does manage to win enough votes for victory, I still think that IIP will be able to deliver solid growth for years to come.

Keith Speights owns shares of Innovative Industrial Properties. The Motley Fool owns shares of and recommends Constellation Brands, Cresco Labs Inc., Innovative Industrial Properties, and Trulieve Cannabis Corp. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.