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Monday, January 30, 2023

Why Green Thumb Industries, Curaleaf, and Cresco Labs rallied today

what happened

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Stocks of US cannabis companies Green Thumb Industries (gtbif 6.90%)And the Coralif (curve 7.83%)And the Crisco Labs (CRLBF 11.26%) They were rising on Friday, up 8.1%, 6.1%, and 10.2%, respectively, as of 12:23 a.m. ET.

These stocks sold off hard earlier in the week, as hopes of passing the Safe and Fair Enforcement Act (SAFE) were dashed in the lame-duck session of Congress. However, Friday’s news saw Senate Majority Leader Chuck Schumer make a last-ditch effort to include SAFE in the larger sweeping bill, which could be the last legislation this Congress passed.

After selling off aggressively, these stocks bounced back hard on a bearish day for the markets. However, it still looks like a long shot to pass, due to Minority Leader Mitch McConnell’s opposition. So today’s action can be just a file Dead cat bounce.

so what

This morning, it was reported that Schumer was making a last-ditch effort to appease some Republican colleagues about the language in the SAFE Act, in the hopes that it will be included in an upcoming sweeping spending bill. Republican hesitation revolves around enforcement and money laundering, reflecting concerns contained in a Justice Department memo earlier this year.

It should be noted that the SAFE Act would compensate major banks for liability in working with state-legal cannabis companies, but would not amount to legalization or descheduling. Passage would lower the costs of the cannabis business while also improving safety, advocates say. Cannabis companies now have to use more sophisticated solutions, and many retail stores have to use cash — and having too much cash makes these businesses vulnerable to crime. Moreover, cannabis companies will likely be able to get better interest rates on loans with more competition from large banks.

However, while SAFE has some Republican supporters, Minority Leader Mitch McConnell has consistently said he would refuse to include it in the broader spending bill. Earlier this month, McConnell refused to incorporate SAFE into the National Defense Authorization Act (NDAA).

So while it’s possible that SAFE was somehow passed in a lame-duck session, this kind of looks like Schumer’s Hail Mary to appease cannabis advocates.

What now

Since earnings season, all of the US Multi-State Operators (MSOs) have basically traded on the news regarding the possible passage of the SAFE Act. However, even if it passes, US cannabis companies will not find it a panacea for their current problems.

Schumer and Senator Cory Booker’s push for a larger legalization bill failed this summer, as full legislation seemed too big a hurdle for 10 Republican senators to overturn the filibuster, even though another legalization bill had already passed the House.

While SAFE Banking may help, it will not be entirely clear to US cannabis stocks. Only legalization and descheduling would give relief to US corporations struggling under the excessive tax burdens of state legal corporations under Section 280e of the IRS Code. Without this, it is difficult for any cannabis company to earn real profits and cash flow. In addition, US MSO has been struggling with some oversupply in some markets and cash-strapped customers this year, which has led to lower margins.

President Joe Biden has done what he can for cannabis advocates, including pardoning nonviolent federal cannabis offenses, ordering the Secretary of Health and Human Services and the Attorney General to review how cannabis is scheduled, and recently signing into law a bill that passed Congress. Expanding medical research on cannabis.

However, this may not make a difference for years. Without near-term relief from legalization, many US MSOs, which looked rather strong this time last year, could find themselves in a bind, with many taking on debt to expand their footprint ahead of expected legislation. Now that there may be nothing coming – even a bill for safe banking – everything hemp stock It remains very risky for investors, despite today’s rally.

Billy Dubrestein He has no position in any of the aforementioned shares. Its clients may own shares in the aforementioned companies. The Motley Fool has and recommends positions at Cresco Labs and Green Thumb Industries. The Motley Fool has a Disclosure policy.

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