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Will the U.S. Senate Deny Cannabis Companies Access to This Vital Service?

By Joe Tenebruso - Sep 27, 2019 at 7:50PM

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After a major political win, marijuana stocks face another huge hurdle.

The cannabis industry breathed a sigh of relief earlier this week after the House of Representatives passed the Secure and Fair Enforcement (SAFE) Banking Act. 

The legislation is intended to grant cannabis companies access to banking and other related financial services. Since marijuana is still illegal at the federal level, many banks have refused to serve state-licensed cannabis businesses. As a result, these companies have been forced to operate on cash, which many industry watchers see as a major risk.

"It's an invitation to theft, it's an invitation to money laundering already, it's an invitation to tax evasion, and it stifles the opportunities of this business," Congressman Ed Perlmutter (D-Colo.) said prior to the vote. 

Proponents of the SAFE Banking Act, therefore, believe that passage of the bill will help to reduce the likelihood of these crimes. The act would also grant safe harbor to financial institutions and other businesses that provide services to cannabis companies.

A cannabis leaf on top of a $100 bill.

Cannabis businesses are seeking access to basic financial services, but will the U.S. Senate allow it? Image source: Getty Images.

Despite the act's many potential benefits, several analysts believe the cannabis industry's victory will be short-lived.

Analysts at Height Securities expect the Republican-controlled Senate to block the SAFE Banking Act. The research and advisory firm places the odds of the bill passing at just 25%.

"Our work has indicated that cannabis is a topic that divides the Republican Senate caucus and Senate Majority Leader Mitch McConnell (R-Ky.) has focused on legislation that has had more unified Republican support," the analysts said.

The ETFMG Alternative Harvest ( MJ -2.82% ), an exchange-traded fund that holds shares in approximately 40 cannabis-related companies, sank 2.4% following the analysts' commentary on Friday.

Notable laggards included Canopy Growth ( CGC -4.43% ) and Acreage Holdings ( ACRGF ), which fell 3.7% and 5.2%, respectively. MKM Partners analyst Bill Kirk said that even if the SAFE Banking Act were to be passed by the Senate, it wouldn't be enough for Canopy to move forward with its agreement to purchase Acreage.

That blockbuster deal will likely not occur unless the federal government legalizes marijuana.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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