Key takeaways
- There are reports that the SAFE Banking Act will be excluded from a must-pass bill, marking the third time it’s failed to get through the Senate.
- The Act would give cannabis companies access to banking services, which is currently a challenge to the legal status of cannabis at a Federal level.
- Some are opposed to the Act, fearing it would legitimize the cannabis industry and go against federal drug laws.
- The failure of the Act to pass has caused cannabis stock values to plummet, with companies like Cresco Labs (-25.6%) and Green Thumb (-25.28%) down significantly over the past few days.
If you’re a cannabis company, banking sucks. While cannabis is legal in one form or another in 37 states, it’s not legal at a Federal level. Because of that, getting banking services can be an absolute nightmare for companies in the space.
Banks and other financial institutions that provide financial services to cannabis companies could potentially be charged with money laundering, given that they are processing funds that are derived from illegal activity. They could also face fines and penalties from federal regulatory agencies for violating federal laws.
Understandably, many banks are nervous about this situation and find it easier to just stay away.
The SAFE Banking Act is designed to help fix this problem, but cannabis stocks fell dramatically on reports that the bill was set to fail for the third time.
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What is the SAFE Banking Act?
The SAFE Banking Act was first introduced in the U.S. House way back in 2019. The aim of the bill is to provide a safe and secure way for banks and credit unions to do business with cannabis-related businesses in states where cannabis is legal.
The acronym “SAFE” stands for “Secure and Fair Enforcement.”
Under the SAFE Banking Act, banks and credit unions would be protected from federal prosecution and penalties if they choose to provide financial services to cannabis companies. The Act would also require federal banking regulators to issue guidance to financial institutions on how to provide these services in a safe and compliant way.
In essence, it would decriminalize banking services to a technically illegal activity.
The SAFE Banking Act has received broad support from both Democratic and Republican lawmakers, as well as from a variety of industry groups.
It has also been endorsed by a number of state attorneys general and governors, who argue that it would help to address the public safety and financial risks associated with the current system, which forces cannabis businesses to operate on a largely cash-only basis.
Despite this support, the SAFE Banking Act just can’t get through the Senate. This latest attempt tagged the bill onto larger government spending packages, but it looks set to be excluded again.
Why won’t the SAFE Banking Act pass?
There are a number of lawmakers and organizations who are opposed to the legalization of cannabis in any form. They argue that the Act would effectively legitimize the cannabis industry and undermine federal efforts to enforce laws against the drug.This is despite President Biden announcing earlier this year that his administration would be pardoning thousands of people who had been convicted of marijuana possession. He’s also working on a review of the classification of the drug away from its current Class 1 status, in line with drugs like heroin and LSD.
That change would potentially make the SAFE Act null and void anyway.
Until that happens, the Act may also face opposition from some financial institutions who are hesitant to get involved with the cannabis industry due to the ongoing legal uncertainty surrounding the drug.
Despite the protections provided by the SAFE Banking Act, banks and credit unions may still be hesitant to provide financial services to cannabis businesses given the potential legal and financial risks.
Cannabis stocks down significantly on the news
Unsurprisingly, cannabis stocks were down heavily off the back of these reports. Significant falls were felt on Monday from companies such as Cresco Labs (-17.6%), Green Thumb (-12.1%), Tilray (8.6%) and Canopy Growth (-7.3%).
Since then they’ve fallen even further. Cresco Labs is down -25.6% over the past five days, Green Thumb -25.28%, Tilray -19.6% and Canopy Growth -17.44%.
Like many other sectors, the cannabis industry has been hit hard on the stock market this year. The challenging overall economic environment has had a lot to play in that, as has this ongoing regulatory gray area.
The sector is down massively from its peak in 2018/2019. During this period, cannabis stocks were one of the hottest commodities in investing circles. Before the boom in crypto, NFT’s and meme stocks, cannabis was a huge trend as legalization spread across the United States.
So it’s been a bit of a rollercoaster ride for the cannabis sector in recent years.
The outlook for cannabis stocks
Despite coming down off the hype train since 2018/2019, many analysts still believe there is serious growth potential and the outlook for medical cannabis stocks is generally considered positive.
The global market for medical cannabis is expected to continue to grow in the coming years, with Federal legalization expected to happen eventually. The sector is expected to grow in other countries too, with medical cannabis increasingly being used to treat a variety of medical conditions such as chronic pain, epilepsy, multiple sclerosis and Crohn’s disease.
These treatments are being supported by greater scientific backing, which is only going to improve the uptake.
As more research is conducted, the potential benefits of medical cannabis are becoming better understood, which is likely to lead to increased demand for the drug.
Of course there’s no timeline on this and no guarantees. There remains strong opposition to legalization of cannabis, particularly in more conservative areas of the United States and the rest of the world.
What’s the best way to invest in cannabis?
Wading into the cannabis sector right now, with so many stocks down heavily, is daunting. There’s no getting around. No matter how many times you hear someone quoting Warren Buffet and telling you to be greedy when others are fearful, getting in when prices have crashed feels risky.
That’s particularly true when you’re talking about a controversial asset class like cannabis. There are still some major regulatory hurdles to be jumped if the industry is going to be able to fulfill its potential for investors.
With that said, there is a lot of potential there.
So you could invest in various companies involved in the cannabis related business and hope for the best. The problem with that is that even if the industry itself provides big gains, you still need to choose the right correct specific stocks.
To get around this, we’ve packaged our cannabis holdings into what we call our Guilty Pleasures Kit. This AI-powered Investment Kit looks to invest across a range of different industries that offer big potential gains, with a side of controversy.
The way this works is that every week we use our AI to analyze and predict the performance of a range of different securities across a number of different sectors. These sectors are alcohol, tobacco, cannabis, gambling and ‘love’.
Our AI then automatically rebalances the Kit each week, based on those predictions on a risk-adjusted basis.
Regardless of your personal stance on so-called ‘sin stocks’ there’s no denying that they’re often very good businesses to be in. Not only do they offer opportunities for growth, but they also tend to be surprisingly recession resistant.
Given the economic environment we’re in, that’s a valuable trait to have.
So if you see potential in the cannabis industry but don’t want to go all in, our Guilty Pleasures Kit can offer exposure to the sector, as well as having the power of AI in your corner.
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