“Really what it comes down to is how important is cannabis for the Democrats to pass,” says Nawan Butt, Portfolio Manager at Purpose Investments.
Cannabis in the US Midterms: Incremental Reform
Earlier this year, Senate Majority Leader Chuck Schumer introduced the Cannabis Administration and Opportunity Act (CAOA). The CAOA is comprehensive legislation aimed to legalize cannabis recreationally across the United States.
Schumer’s positioning on cannabis law reform has influenced stocks, but the Democrats haven’t delivered so far. Observers and experts have criticized the CAOA for numerous reasons. Most notably, a 15% excise tax would be levied in addition to state-level taxes.
For this reason, cannabis reformers have seen more success in incremental steps.
“Incremental reform has been defined as a mix of the SAFE Banking Act, plus social equity provisions, added on top of that to appease more left-wing Democrats,” says Nawan.
“We think there is work being done on a SAFE Banking Plus Bill, which is going to include the basics of the SAFE Banking Act. Which helps a lot of corporations get access to financial services and allows greater investor access to cannabis-related businesses.
“We think it’ll also have some social equity provisions in it. Which lays the foundation for spending a lot of the taxation that’s collected toward rehabilitation, as well as social equity and social justice programs for those adversely affected by cannabis laws in the United States.”
Promising Republican Poll
If the midterm results are Republican majorities in the House and Senate, then the GOP may push cannabis reform aside until the 2024 general election.
“We don’t think this [cannabis reform] would be an item that the Republicans will prioritize,” says Nawan. “It’s not that they don’t support it. If we take a look at GOP support, they do look at cannabis as a positive.”
Recent polling of Republican voters found overwhelming support for cannabis legalization.
73% said there is no difference between the rights of legal cannabis businesses and that of any “regular” business. 76% of Republican voters agreed that the federal government should not interfere with individual states’ decision to legalize or decriminalize cannabis.
“So we can’t say GOP doesn’t support cannabis,” says Nawan. “There is a certain divide between the populace and the leadership, or the legislators. But overall, it’s either the Democrats pass it now or we’re going to see this being put off. At least until we have further insight into what the 2024 elections are going to look like.”
Cannabis in the US: Post-Midterms
Passing something cannabis-related after the midterms isn’t impossible. But it’s unlikely.
With a potential flip of the House and Senate to GOP control for the balance of the Biden presidency, “we don’t think this would be an item that the Republicans will prioritize,” says Nawan.
“If something doesn’t happen in the lame duck session, then we’re going to be pushing this out another 16, 18, maybe 24 months.”