Senate Majority Leader Chuck Schumer (D-NY), Senate Finance Committee Chairman Ron Wyden (D-OR) and Sen. Cory Booker (D-NJ) formally filed the Cannabis Administration and Opportunity Act (CAOA) today. The long-anticipated legislation was met with cheers by the beleaguered cannabis stocks, which mostly jumped in value on the news.
The 296-page legalization bill looks very similar to an earlier version, which was a mere 163 pages. The new language better defines hemp to address situations where more THC ends up in the final product than currently allowed. According to Marijuana Moment, the bill also has revisions concerning cannabis industry workers’ rights, a federal responsibility to set an impaired driving standard, banking access, expungements and penalties for possessing or distributing large quantities of marijuana without a federal permit.
“For far too long, the federal prohibition on cannabis and the War on Drugs has been a war on people, and particularly people of color,” Schumer said in a press release, adding that CAOA “will be a catalyst for change by removing cannabis from the federal list of controlled substances, protecting public health and safety, and expunging the criminal records of those with low-level cannabis offenses, providing millions with a new lease on life.”
News of the CAOA filing had been trickling out causing the MSOS ETF to rise more than 20% since bottoming on June 30 at 10.08. Of course this is way below the ETF’s top of 55 in February 2021.
Bullish For Stocks
Pablo Zuanic of Cantor Fitzgerald wrote a report released today, “We think the revised CAOA is bullish for cannabis stocks (all else equal), especially in the context of depressed valuations, the recent rally notwithstanding. If Senator Schumer’s cannabis reform bill (as filed this morning) were to be passed by Congress, it would be a watershed (read bullish) event for U.S. cannabis stocks. But we are doubtful it will have 60 votes in the Senate, so we will closely monitor his comments and those of Republicans in the coming days – i.e., the bill sponsors’ willingness to compromise.”
He went on to say, “Not coincidentally, Sen Booker begins committee hearings on Tue 7/26 on decriminalizing cannabis at the federal level. All that said, the revised CAOA bill (Cannabis Administration and Opportunity Act) seems to have taken input from a wide range of constituencies since the draft was first filed in mid-July last year (with some new business-friendly provisions), and this makes us think the sponsors could (?) consider a narrower (incremental) piece of legislation later this year (even in the lame duck). So, at this stage, we would not rule out any scenarios and think investment risks are to the upside.”
“Two initial thoughts: the revised bill seems to pass the buck on de-scheduling to the DOJ (why not just legislate? does this help get more votes?), but on the other hand calls for FinCEN to allow banks to service licensed cannabis businesses (we think this would be enough for US exchanges together with de-scheduling). We have said all along, the reform news tape is binary, and tough to predict, but we remain buyers of the top MSOs,” he wrote.
Zuanic did note that the bill has again been attached to the Defense Bill (NDAA). “We remain skeptical Sen. Schumer will allow SAFE without broader social equity provisions, but it cannot be ruled out (especially given increased lobbying by a number of parties, including Treasury Secretary Yellen, leading Senators, state AGs). But even if passed, SAFE would not lead to de-scheduling and hence there would be no exchange uplisting for US cannabis stocks. Of course, it would help the industry in terms of access to borrowing and to a broader set of banking services. SAFE does not provide a framework to regulate cannabis,” he said.
The Financial Crimes Enforcement Network (FinCEN) he said would need to update or issue new guidance clarifying to banks and credit unions that the policy change means that they can lawfully service legitimate cannabis businesses.
The SBA would also get into the act with a 10-year pilot program through the federal Small Business Administration “for intermediary lending” to provide “direct loans to eligible intermediaries that in turn make small business loans to startups, businesses owned by individuals adversely impacted by the War on Drugs, and socially and economically disadvantaged small businesses.”
Mark Lozzi, CEO of Confia said, “We are hopeful about the newly introduced legalization bill, which includes social equity provisions. Until we have a solid system in place through legalization, including non-predatory banking opportunities, we will continue to see distrust of our industry, while compounding the challenges of transparency, regulation, and oversight. Social equity is a crucial part of cannabis legalization, and no business or individual deserves to be left behind. Confia has developed a social equity program as an actionable way for us to impact and contribute toward creating equality for all in the industry. We hope the new bill will receive support, and ultimately become law. As we are in the early stages of the cannabis industry’s legitimacy, we recognize it will take collaborative action and engagement in order to make a long-term sustainable impact.”