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Here's Why December Could Be a Huge Month for Cannabis Stocks

By David Jagielski – Dec 2, 2021 at 7:26AM

Key Points

  • The SAFE Banking Act is included in a piece of must-pass legislation that remains outstanding.
  • Passing the bill would be a big step forward for the industry.
  • It won't legalize marijuana, but the legislation will make it easier for cannabis companies to scale their operations.

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A major bill could be on the verge of passing.

If there's one thing that can get marijuana stocks moving, it's the hope of legalization or some sort of reform in the industry. Unfortunately, up until now, that's all there has been -- hope. But with a Democratic-controlled Senate and House, plus a president who is in favor of decriminalization, there's reason to be optimistic that change could be coming sooner rather than later.

And that change could come in the form of the National Defense Authorization Act (NDAA). The bill has passed for 60 years in a row, and heading into the final month of the year, it's a significant piece of legislation that is still outstanding that will likely be a key priority for lawmakers this month. It also includes a cannabis bill.

Two people working at a greenhouse.

Image source: Getty Images.

The cannabis banking bill is included in the NDAA

In September, the NDAA passed the House, and included in the bill was the Secure and Fair Enforcement (SAFE) Banking Act. If that sounds familiar, it's because the SAFE bill has now passed the House five times but has failed to progress any further.

The NDAA is often referred to as being "must-pass" legislation and so the big question may not be if it passes but if in its final version, whether the SAFE Banking Act is still in there. If it is, that would be a huge win for cannabis stocks.

Why does SAFE Banking matter?

The SAFE Banking Act won't legalize marijuana nor would it even decriminalize it. But what it will do is make it easier for banks to work with the cannabis industry. Although it's not impossible for cannabis companies to obtain bank accounts, it's definitely not easy.

The companies that will benefit most will undoubtedly be the multistate operators, including Cresco Labs. In July, its CEO Charlie Bachtell told BNN Bloomberg that while some banking services are available, passing of the bill would enable what he refers to as "Big B banking" for the industry. "Big B banking is where you have access to capital, you have access to leverage, where you could get credit facilities that allow you to smooth out cash flow and really create scale in a way that you would think from a traditional industry can," he said.

And the obstacles go beyond just a lack of banking services being available. In November, top bank JPMorgan Chase went so far as to restrict trading of U.S.-based pot stocks, stating that, it "has introduced a framework that is designed to comply with U.S. money laundering laws and regulations by restricting certain activities in the securities of U.S. marijuana-related businesses." Passing SAFE Banking would make it easier for JPMorgan to do business with the cannabis sector without fear of running afoul of U.S. laws. That would also help multistate operators secure funding that doesn't rely mainly on the equity markets and share issues. For investors, that could mean much less dilution. 

Should you invest in cannabis stocks?

Support for legalizing marijuana has never been higher, with 68% of Americans being in favor of it, according to a recent Gallup poll. A movement toward legalization appears to be inevitable, and it's more a question of when rather than if it will happen. 

And if you are willing hang on for the long term, then buying a top marijuana stock could be a solid move for your portfolio. Industry analysts at BDSA project the global cannabis market will be worth close to $56 billion by 2026 (the U.S. market accounting for more than $41 billion) -- nearly three times the $21 billion it was worth last year. While buying and holding any pot stock could pay off over the long term, those that have a strong presence in the U.S. could be among the biggest winners.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. David Jagielski owns shares of Cresco Labs Inc. The Motley Fool owns shares of and recommends Cresco Labs Inc. The Motley Fool has a disclosure policy.

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