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Thursday, February 2, 2023

Cannabis stock rises amid legalization optimism after Biden pardon, but still undervalued

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President Joe Biden’s comments about cannabis legalization sparked a crowd in the cannabis sector on October 6. His main announcement was that all prior federal offenses of petty marijuana possession would be pardoned. The law is expected to affect nearly 6,500 people who were convicted from 1992 to 2021. In addition, Biden called on governors to take similar action toward amnesties for possession crimes. More importantly for the legal cannabis industry, he plans to direct the Department of Health and Human Services and the Attorney General to review the product’s status as a Schedule 1 controlled substance, placing it between heroin and LSD and higher than methamphetamine and fentanyl.

Cannabis stocks jumped up to 30% after the news, but we didn’t make any changes to our forecasts or fair value estimates for our coverage list. We already predicted that federal legalization of cannabis in the form of state rights, which would recognize each state’s legal status, would pass by the end of 2023. The path to changing federal law has been difficult with the Senate divided. However, we still think she’ll get the 60 votes required to pass. A change in current federal law will likely allow cannabis operators in the United States to pay lower taxes, and have access to traditional banking services based on major exchanges. It is also likely to trigger options that Canadian operators will have to acquire from US assets.

Even after the rally, every cannabis stock we cover remains undervalued. No Curaleaf Trench (curve), green thumb (GTBIF), Tilray (TLRY), canopy growth (CGC(Trade 5 stars while Aurora Cannabis ditch)ACB) and Cronos (krone4 star traded. For investors looking for exposure to a change in the US federal ban, we see the US multinational operators Curaleaf and Green Thumb as preferable, given their direct market exposure. Canopy is the most attractive option among Canadian players, due to its numerous deals on US assets that would lead to a change in federal law.

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