Weed stocks just had their best week of the year – jumping 22% in five days on some very unexpected news that a republican congresswoman from South Carolina will introduce a bill on Monday to federally legalize and tax cannabis.
Last Thursday Marijuana Moment reported that representative Nancy Mace (R-SC) is circulating a bill called the States Reform Act that would legalize and tax recreational cannabis at the federal level.
Here are some more details from the report.
A new Republican-led congressional marijuana legalization bill is imminent, Marijuana Moment has learned. The measure is being framed by advocates as a compromise between simple de scheduling as proposed by other GOP lawmakers and wide-ranging comprehensive legislation that Democratic leaders are championing.
Marijuana Moment obtained text of the draft legislation, which is being led by Rep. Nancy Mace (R-SC). The measure, titled the States Reform Act, is currently being circulated among stakeholders for feedback and is therefore preliminary, but a final version is expected to be officially filed later this month.
This is Good News for Four Reasons
This is a very positive development for weed stocks for four reasons.
#1 – Increases Pressure on Democrats: The Democrats have been majorly stalling on passing cannabis legislation in 2021 and that is the biggest reason why cannabis stocks have struggled this year. This new bill sharply increases the pressure on Democrats to pass some cannabis bills because the lawmakers who finally get legalization across the goal line are going to have a big win on the resume. It’s a big prize. It would be a huge loss for the Democratic party to let Republicans get the win on cannabis legalization and this bill increases the pressure on democrats to get something done and have it done quickly.
#2 – This is a Cannabis Friendly Bill: The new Republican bill is very friendly to the cannabis industry. For example, this new bill proposes a 3.75% federal tax rate on cannabis, in line with similar industries such as tobacco and alcohol.This is a sharp contract to Schumer’s bill, which calls for a 10% federal tax that scales up to 25% in a few years.
#3 – Legislators Showing Political Will: This is another indicator that politicians are getting the message that the majority of U.S. citizens want cannabis to be legalized and taxed. According to a recent poll from Rasmussen, 62% of Americans support legalization. This new bill sharply increases the probability of reform in the next few months – something the market was not anticipating.
#4 – Bipartisanship Support on Display: Democrats have historically been much more friendly to the cannabis industry than Republicans. However, that has been evolving quickly in the last few years. According to a recent survey from Rasmussen, 54% of Republicans support legalization. This still trails Democrats’ support at 68%, but it’s a sharp improvement that is now the majority. This attitude shift among voters is showing up in the republican party, on display with the new bill. Getting more republicans on board with legalization increases the probability of serious reform.
The Good News Triggered a Big Rally in Weed Stocks
The new republican-led cannabis bill triggered a big rally in weed stocks. In fact, the sector had its best week of the year. The Advisorshares US Cannabis ETF (NYSE: MSOS) gained 22% in the last five days.
Many individual stocks were up even more.
- Green Thumb Industries (OTC: GTBIF) jumped +44%.
- Verano Holdings (CSE: VRNO) jumped +40%.
- Cresco Labs (OTC: CRLBF) jumped +26%.
Weed stocks needed the relief. The sector has been stuck in a down trend for the last nine months. Even after the big weekly gain, weed stocks are still trading at a huge discount to the 52-week high.
The Advisorshares US Cannabis ETF (NYSE: MSOS) is still down 42% from the 52-week high. Take a look at the 2021 chart below – you can see last week’s big jump and the larger down trend that has been in play in 2021.
Chart from Trading View
What Should We Expect Moving Forward?
It’s very possible weed stocks have finally ended the 9-month decline. If that’s the case then the sector is in the very early stages of a big rebound and move higher.
Here is the Plan Moving Forward
In my last few newsletters I told my subscribers that I would be busy buying stocks in October – and that includes cannabis stocks. With cannabis stocks being down so much I was able to buy at a sharp discount to the 52-week high.
Looking forward most of my clients are set on cannabis stocks. But this still looks like an excellent time to be aggressive with weed stocks. The sector is trading 40% below the 52-week high with a major catalyst directly on the horizon that is not priced in.
I’ll be back with another update next week – have a great day!
Disclaimer: This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading.
Author Michael Vodicka owns shares of Green Thumb Industries (GTBIF), Verano Holdings (VRNO) and Curaleaf Holdings (CURLF).
