Cannabis stocks on watch as legalization makes progress

A draft of the long-awaited Cannabis Administration and Opportunity Act is being released today — which could light up cannabis stocks.

What’s the big deal? US Federal legalization of cannabis is on the horizon — and this is one move you won’t want to miss out on. With Biden in office and the Democrats controlling the House and Senate — passing a bill has never been more possible.

While the bill is just meant to spark discussions, the draft will introduce the formal bill for later this year. According to Bloomberg, the bill could address issues like:

• Allowing banks to work with cannabis companies for bank accounts/loans.
• Letting US cannabis companies list on US stock exchanges.

Any of these developments would be a big positive for cannabis stocks. But until we see signs of a bill passing, their effect on stock prices will be limited.

Investors: Compared to Canadian companies, US cannabis companies are more restricted. They also have a big difference compared to Canadian ones: lack of big investor ownership:

• Institutional investors hold 15% of Canadian cannabis companies vs. only 4% of US ones.
• Many institutional investors are unable to invest in companies unless they’re on big exchanges.

A change in this listing rule would open up big buying power for these stocks — sending them to higher levels.

Add to watchlist: In the past week, investment bank Jefferies started covering US cannabis companies — even expecting them to double over the next year.

• Companies listed include: Curaleaf (CNSX:CURA), Green Thumb Industries (CNSX:GTII) and Trulieve (CNSX:TRUL).
• These stocks are listed on Canadian exchanges since they can’t be listed in the US — but are also found in the US OTC markets.

US cannabis companies trade at a discount compared to Canadian ones, with one big thing keeping that gap — legalization.