What happened

Marijuana stocks were trending in different directions Tuesday morning. Cresco Labs (CRLBF 5.13%) shares shed 6.7% through 10:37 a.m. ET, while rival Aurora Cannabis (ACB -0.15%) gained 6.5%. And Canopy Growth (CGC 2.41%) -- which spiked by nearly 9% right after market-open -- has already given back most of its gains, but is still hanging onto a 1.4% gain.

So what exactly is it that's giving marijuana investors the heebie-jeebies?

So what

Big picture, the song remains the same (if you'll pardon the mixed metaphor).

In Washington, D.C., there's been no clear response yet from the Drug Enforcement Agency to the Department of Health and Human Services' recommendation that marijuana be rescheduled to a level that would make legalizing marijuana for medical purposes easier. In Congress, however, work continues apace in a Senate committee to finalize a version of the SAFE Banking Act, which would permit banks to provide banking services to marijuana companies in states where the drug is legal. A committee vote to move the bill to the Senate floor is expected mid-next week, and legislators are optimistic that, this year, at last, the act shall pass.

In support of that, Marijuana Moment reported Tuesday morning that a coalition of 35 "cannabis trade associations, drug policy reform groups," and even the United Food and Commercial Workers International Union has sent a letter to Congress urging it to pass the SAFE Banking Act. As the letter's signatories stress, preventing marijuana businesses from being able to legally deposit their income into banks forces small businesses to operate mostly in cash, and makes them a target for criminals -- there were as many as 100 robberies of cannabis businesses between November 2021 and April 2022 in Washington state alone.  

This latest addition to the chorus in favor of the SAFE Banking Act sounds like good news for marijuana stocks. Anything that makes operating in the marijuana space easier and more profitable for small businesses is likely to filter up and benefit the bigger companies that produce the marijuana in the first place.

The problem is that the closer we get to SAFE Banking Act passage -- as it becomes less like a hope and more like a reality -- the more investors are going to have to consider whether the law will make a big enough difference to the publicly traded marijuana companies to turn one or more of them profitable.

In that regard, mention is often made of Canada, where marijuana has been fully legal for years, yet still remains an unprofitable business for big players such as Canopy Growth and Aurora Cannabis. However, what many investors may not know is that Canadian banks remain reluctant to offer banking services to Canadian pot businesses.

"Canadian cannabis companies often face similar challenges in finding banks willing to work with them," the marijuana news site StratCann reported late last year. The reason seems to be that Canadian banks often have cross-border ties to U.S. banks, and fear punishment from U.S. regulators even if they are only working with legal Canadian cannabis businesses.  

Potentially, therefore, if Congress passes the SAFE Banking Act, it could benefit not only the U.S. marijuana industry, but the Canadian marijuana industry as well.

Now what

And now, one final hopeful note for U.S. marijuana investors. Earlier this month, you may have heard that Aurora Cannabis announced a plan to issue shares to raise cash with which to pay down its debt -- in order to lower its interest payments and make it easier for the company to achieve positive free cash flow (FCF) next year. Investors quickly rewarded the company with significant stock price gains. Recognizing that, on Tuesday, Aurora Cannabis doubled down on the idea.  

As management just announced, the company will buy back a further $9.6 million worth of its convertible senior debt, and will pay for that by issuing and selling another 13.5 million Aurora Cannabis shares. That is in addition to the $9 million worth of debt Aurora has already promised to pay down by issuing 20.1 million shares back on Sept. 11.

The more debt Aurora pays down, the closer it will get to positive FCF. The closer Aurora gets to positive FCF, the more its stock price goes up. The more its stock price goes up ... the cheaper it gets to issue more shares and pay down more debt.

Lather, rinse, and repeat.