The US election could be a huge win for cannabis, both at the federal and state levels, but a pro-cannabis outcome has yet to be fully priced into US cannabis stocks, says PI Financial analyst Jason Zandberg, who delivered an update to clients on Wednesday on the state of the industry.
Slated to be the single most impactful event for cannabis to date, the November 4 election will see a number of states put adult-use legalization on the ballot. New Jersey, Arizona, Montana and South Dakota are all taking up the issue, while at the federal level, the House of Representatives has passed a number of pro-cannabis bills including the SAFE Act, MORE Act and STATES Act but these have been stalled at the Republican controlled Senate but that situation which could change after election day.
As Zandberg reports, current polling suggests all of the state-level cannabis initiatives should pass, while the real potential for a flip to Democrat control of the US Senate could mean that the pro-cannabis bills could pass, effectively removing a number of major financial and tax-based barriers for the industry. On the presidential level, the sitting president has been neutral to slightly negative on cannabis during his tenure, according to Zandberg, but a win by challenger Joe Biden could be more favourable as he has come out in support of medical use but not adult use.
Either way, the results should make their mark on US cannabis stocks, said Zandberg.
“Although current polling suggests that this election could be a huge win for cannabis, we believe a positive outcome is not completely priced into cannabis stocks. This may be because polling data proved to be incorrect in the 2016 election or the fact that the Senate race is tight and could swing either way. We expect the markets will have its biggest reaction once the official results are in,” Zandberg wrote.
Zandberg noted that Democrat vice-president hopeful Kamala Harris has been a vocal advocate for legalizing cannabis during the run-up to the election and is a co-sponsor of the MORE Act to legalize cannabis and expunge marijuana conviction records. If cannabis ends up being re-scheduled, Zandberg said it would be a significant benefit to the industry.
As for the state level, Zandberg commented on both Arizona and New Jersey, which would represent large new adult-use markets. On Arizona, the analyst said polls are mixed, quoting first a July 2020 poll that found about 62 per cent of likely voters supporting cannabis legalization and then two Monmouth University polls, one in September which had 51 per cent in favour and 41 per cent against and then one in October that found 56 per cent in favour and 36 against.
Zandberg said that given the strength of Arizona’s established medical market, the rec rollout if it occurs should be quick and should contribute to revenues from an early stage. Currently, the companies
with the largest exposure to Arizona include Harvest Health with 15 dispensaries currently and 22 licenses, Curaleaf with eight dispensaries and nine licenses and iAnthus with four stores and four licenses.
The New Jersey situation is one to watch, as well, according to Zandberg, not only because the state has a currently underdeveloped medical cannabis program with only 11 stores and low penetration rates for a population of about 9 million, but also there could be a knock-on effect on nearby states.
“If New Jersey passes its adult-use question we believe that many neighbouring states are likely to create their own adult-use markets to collect cannabis state taxes that will otherwise flow to New Jersey,” Zandberg wrote. Currently, there are a number of cannabis companies with three licenses in New Jersey, including Acreage Holdings, Curaleaf, Columbia Care, Green Thumb, Ascend Wellness,
iAnthus and Terrascend. Year-to-date best performers in PI Financial’s coverage have been Trulieve Cannabis, up 82 per cent at press time, Columbia Care, up 50 per cent, and Cresco Labs, up seven per cent. All three have “Buy” ratings from PI Financial.