U.S. Legalization At ‘Tipping Point’

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While President Trump tries to make the Tuesday’s midterm elections all about immigration, medical marijuana legalization and recreational marijuana legalization are also on the ballot in four states, with implications for marijuana stocks.

As national support for marijuana legalization swells to around two-thirds — including a majority of Republicans by some estimates — some analysts see more gaps being filled in the patchwork of U.S. legal states on Tuesday’s midterms. And while cannabis is federally outlawed, they see deepening cracks in the barriers of legal resistance.

“We believe his year’s midterms will reinforce the notion that cannabis in the U.S. has (passed) the tipping point on its way to eventual full legal status,” Canaccord analyst Bobby Burleson said in a research note.

States, Governments, Companies

In addition to Congress, the fate of pot-friendly state bills — and the fate of pot-unfriendly Attorney General Jeff Sessions — hang in the balance on Tuesday. Voters in Michigan and North Dakota will consider measures for recreational marijuana legalization. Utah and Missouri will consider medical marijuana legalization.

Gubernatorial races in states like Michigan, New York and New Hampshire could also be pivotal in advancing or halting marijuana legalization. Candidates like Ned Lamont in Connecticut and Andrew Gillum in Florida have expressed support for legalization. Any loosening of cannabis restrictions could mean more opportunities for U.S. marijuana companies — like MedMen, Curaleaf, Acreage Holdings, 1933 Industries, Green Thumb and others — to move in.

Here’s a breakdown of what could happen on Tuesday and what it might mean for marijuana stocks.

If Democrats Gain Ground …

Analysts, mostly, agree that Democratic control of both the House and the Senate — which appears unlikely — would offer the easiest path for proposed federal laws like the SAFE Act and the STATES Act.

The SAFE Act blocks the U.S. government from punishing banks that serve cannabis businesses in legal states. Cowen analysts say it has a chance of passing, even if the Democrats only retake the House.

The STATES Act is more expansive, and thus has a lower chance of surviving congressional scrutiny even if the Democrats retake Congress. It would keep the federal government out of states’ marijuana policies altogether. It would also give the marijuana industry access to banking and tax deductions.

Those measures would come on top of what is known as the Rohrabacher-Blumenauer amendment. That 2014 measure prevents the Justice Department from meddling with state medical marijuana legislation. Congress extended the measure last September, but it ends in December.

But a Democrat-controlled House could pose other complications to marijuana legislation. If Democrats try to assume ownership of the issue, Republicans are unlikely to give them the satisfaction, potentially slowing passage of any new law.

“The Republicans will want something in return to get it through,” Curaleaf Executive Chairman Boris Jordan said in an interview in October. “And you know the minute anyone wants something in return, things take a lot longer.”

If Republicans Hold Ground …

Cannabis legislation isn’t necessarily dead on arrival if the GOP retains control of the House and Senate, either, analysts say.

“Given popular support for cannabis legislation and a preference by many Senate Republicans to respect states’ rights, a GOP Senate could advance a cannabis bill,” Cowen & Co analysts Jaret Seiberg and Chris Krueger wrote in a report on Wednesday. “We believe narrower measures would be the easiest to advance such as the SAFE Act on banking or Rohrabacher-Blumanauer on medical use.”

“It is hard to see Senate Majority Leader Mitch McConnell accepting broader cannabis bills,” they added.

Still, McConnell supports the 2018 Farm Bill, which could loosen restrictions on industrial hemp. Congress is still trying to move ahead with a final bill.

Sessions Departure?

The departure of Sessions — who calls pot a “very real danger” and said “Good people don’t smoke marijuana” — is also a possibility. Trump has publicly fumed over Sessions’ decision to recuse himself from the investigation into whether the Trump campaign colluded with Russia in the 2016 presidential election.

Sessions in January said he was rescinding the Cole Memo. That Obama-era directive instructed a lighter enforcement approach from the feds to states that legalized cannabis. The marijuana industry plowed ahead anyway.

Michigan Recreational Marijuana Legalization Vote

Michiganders will vote on a law that would allow people over 21 to use and possess recreational marijuana. The law would also affix a 10% excise tax to legal weed purchases. Support for the measure, which would make Michigan the first Midwestern state to legalize recreational weed, has trended above 50%.

The state has the second most medical marijuana users in the U.S., and offers “notable promise” as a recreational market, Canaccord Genuity analysts say. The firm estimates the state’s pot market could hit $1.3 billion in 2022. Recreational marijuana would comprise a little under half.

Democrat Gretchen Whitmer and Republican Bill Schuette face off in the race for governor. Whitmer, who is currently ahead in the polls, has said she supports recreational marijuana legalization. A campaign spokesman for Schuette has said Schuette doesn’t support recreational legalization but would “respect the will of the voters.

North Dakota Recreational Marijuana Legalization

North Dakotans also vote on a measure that legalizes recreational use for people 21 and older. That law also would also create a way for people to expunge convictions of drugs that have been legalized.

Polling averages in the solidly red state, as tallied in a Cowen & Co. research note this past week, show more people oppose legalization than support it.

Utah Medical Marijuana Legalization

Utah voters will decide on a proposition that would legalize medical marijuana usage for people with medical conditions deemed suitable for treatment.

The measure has 51% support, Cannacord says. But that support tumbled after the Church of Jesus Christ of Latter expressed opposition, the research firm notes. Still, in Utah’s U.S. Senate race, Republican Mitt Romney and Democrat Jenny Wilson both support taking pot off the Schedule 1 list of controlled substances for medical research purposes.

“Let’s take this off the category 1 designation and let it be evaluated through a normal FDA-type process,” Romney, the former Massachusetts governor who lost to President Obama in the 2012 presidential election, said in a Salt Lake Tribune story in September.

Average polling, according to Cowen, signals around two-thirds support for the measure. Wilson supports the proposition, known as Proposition 2. Romney said he prefers taking a legislative path toward legalization. Others in Utah’s government and religious community also plan to introduce a measure to legalize medical marijuana

Missouri Medical Marijuana Legalization

In Missouri, three medical marijuana legalization ballot initiatives are up for consideration. Each sets different parameters on taxes, purchases, possession and dispensary limits. Two are constitutional amendments.

The measure that ends up with the most votes is the one that would become law. All three have around two-thirds support, according to Canaccord.

Marijuana Stocks Try To Recover

After a brutal sell-off that coincided with the broader market’s weakness, marijuana stocks have recently shown signs of rebounding or at least stabilizing.

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