Is the Federal Government Going to Legalize Marijuana? - 7investing
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Marijuana leaves

Is the Federal Government Going to Legalize Marijuana?

November 12, 2021

Cannabis has been legalized in some states but it remains illegal on a federal level. That creates all sorts of problems for companies operating in the space as they have to navigate different rules in each state they choose to operate in and they face issues when it comes to banking.

Now, Rep. Nancy Mace (R-SC) is leading a bill to deschedule and tax marijuana. That’s a pretty shocking move as a Republican-sponsored bill focused on being able to tax cannabis sales nationally would like have a better chance to pass than one sponsored by Democrats. It’s a move that nobody saw coming which sent nearly every company in the cannabis space higher on the day it was reported.

Legalization on a national level, however, won’t be a rising tide that lifts all boats should it actually happen. That’s because legalization is not the only issue that makes operating in the cannabis space challenging. The reality is that marijuana is a commodity and succeeding at selling a commodity requires expert branding and marketing. Very few operators actually have that and there will be a lot of companies – even highly-touted ones – that underwhelm or fail even in a world with full U.S. legalization.

Steve Symington joined the Nov. 10 edition of “7inevsting Now” to help digest this shocking news (which has no certainty of actually passing as it’s in the early stages).

A full transcript follows the video.

 

 

Dan Kline: So we’re going to be talking marijuana legalization that we had a pretty shocking bit of news out of out of Congress this week.

Then we’re going to talk about Lemonade (NYSE: LMND) buying Metromile (NASDAQ: MILE) this was a big news story out of nowhere. But Steve, before we get to that, how are you doing today? What’s it like in Montana? What time is it? I don’t even know I think it’s I haven’t slept in three days.

Steve Symington  1:17  It’s a little after 2PM it’s a little dreary here right now. But November gold drums. I feel like it needs to snow any moment. So we’re at about that point in the year. Right.

Dan Kline  1:28  Oh, Steve, there’s still time to move like snow. It’s like 82 here in Vegas. But it’s so dry. It’s that 82 that feels like 140. And like you have like nosebleeds like so. But that being said, so here’s what happened. The US government has in my opinion, this could be what legalizes marijuana on a national level. On Friday, online magazine marijuana moment, Steve marijuana moment is not a magazine I’ve ever heard of. I’m taking this from. I want to say it was a, you know, I don’t even know what the original sources so I won’t.

They broke the news that Nancey Mace who is a Republican from South Carolina is leading a bill to deschedule and tax marijuana. Steve, do you want to tell the audience why that gives it a better chance of passing than if, say someone on the other side of the aisle had maybe put it out there?

Steve Symington  2:21 Well, yeah, I mean, this is it’s coming from a Republican, right? And there’s no, not getting political at all here. But generally, it’s understood that the Republican side of Congress is much less supportive of legalizing marijuana on any meaningful scale. And actually especially on a federal level, so that you can actually have this and pull in some of that bipartisan support from both sides of the aisle. It’s really interesting. This could be kind of a change in the tide for marijuana legalization nationally.

Dan Kline  2:58  And it makes it a fiscal question. If you’re looking at balancing budgets, or even God forbid, paying down national debt, if you have this thing. And, Steve, I don’t want to let you in on a secret. There are a lot of people who illegally use marijuana. I, I know I’m in a city where it’s legal at the moment and the entire city smells of marijuana.

But even in Florida, where it’s only legal for medicinal purposes, there’s a lot of marijuana being consumed, add taxes to that. And it’s going to be a significant amount of money we’ve seen in places that it’s been legalized. But we’ve also seen sports betting has followed the same pattern when you make a fiscal thing. So, Steve, do you think this could actually happen not to put you on the spot here?

Steve Symington  3:41  Yeah, I think it seems at this point more an inevitability. It’s a matter in my opinion of, of when not if it eventually happens. So it just makes sense. It’s where the country’s going. Like it or not, I think this will happen. I don’t know if this particular bill will be the one that makes it happen. But it seems to give it a much higher chance, pun intended, of passing.

Dan Kline  4:09  This is an early stage bill. It’s also one that doesn’t need that much. If it gets a lot of support from the left side of the aisle, it doesn’t need that much support from the right. So, you know, look, a lot of votes are made in Congress based on political cover. Like, I am not going to support this because my district is against it. Well, okay. It could pass. But here’s the problem. And I want to get into the investing lesson here. There’s not a lot to talk about here.

But the investing lesson is every single marijuana stock every single cannabis stock yesterday, maybe not everyone but a lot of them shot up ridiculously. And what’s the problem with that one? This isn’t going to happen quickly. This is an early stages bill, even if it passes, it is not going to be a flip a switch bill. There’s going there’s a lot of money management. There’s a lot of complicated issues here. There are some companies in the cannabis space cluding one, I like that legal will actually hurt a piece of their business, you know.

So now I actually think it’s still a very strong company. But there’s a lot to unpack here. But what have we seen investors do? We’ve seen it in, in Canada with cannabis we’ve seen in the US with sports betting, they throw their money at every player. And that’s a mistake, right?

Steve Symington  5:19  Yeah, absolutely. And that some, I think, it really becomes a matter of kind of picking and choosing the leaders in the space and the companies that aren’t necessarily harmed by potential commoditization of marijuana, right, and you need to have differentiated experiences, you need to have something that sets you apart from the rest of the players in this space as a marijuana centric stock.

And that’s something that I think investors really need to keep in mind when they’re researching this space. You know, of course, you’re going to find some ETFs, and those sorts of things that kind of like, wrapped around, you know, kind of roll up, so to speak, these marijuana stocks in, in one kind of tidy little package. And, you know, potentially, you could say, to a certain extent, this rising tide lifts all boats, but not, you know, some will be lifted more than others. And it’ll be, it’ll be interesting to watch for sure. And, you know, we’ll be watching it closely.

Dan Kline  6:19  There are actually very few winners in this space. And because it’s already a commodity, it’s very easy to grow the plants. So it is about branding. And my dear friend Emily flippin used to have this presentation, she probably still has it that she did on the two leading ETFs. And she basically showed you how you think you’re buying exposure to an industry. But the reality is, you’re also buying a lot of companies you wouldn’t want to own. Now, that doesn’t mean all ETFs are bad. There’s lots of well-curated ETFs.

But in the cannabis space, there’s not going to be a lot of winners, like this is a gold rush. It is a, you know, a Race to the Top kind of. And I only think there’s a couple of players in the space.