Marijuana News Today
The marijuana news today has a couple of contradictory elements. On the one hand, President Donald Trump and his administration have instituted new rules for how the U.S. Small Business Administration (SBA) hands out loans that could have a profound effect on the marijuana industry and pot stocks. On the other hand, May has so far been a strong month for several of the bigger marijuana companies.
For the first bit of marijuana news today, however, let’s take a look at the new changes to the SBA loans and what that will mean for the marijuana market.
SBA Loans Rule Change Could Hurt Pot Stocks
Last month, a good chunk of the marijuana news centered around Trump’s statement in support of states’ rights and legalized marijuana.
“Since the campaign, President Trump has consistently supported states’ rights to decide for themselves how best to approach marijuana,” said Senator Cory Gardner (R-CO) in a statement. (Source: “Gardner Protects Colorado’s Legal Marijuana Industry,” Cory Gardner United States Senator for Colorado, April 13, 2018.)
“I received a commitment from the President that the Department of Justice’s rescission of the Cole memo will not impact Colorado’s legal marijuana industry,” added Gardner.
“Furthermore, President Trump has assured me that he will support a federalism-based legislative solution to fix this states’ rights issue once and for all.”
While many—myself included—believed that this would represent an overall tonal shift in how the current White House administration dealt with pot, the follow-up by the feds has been far less supportive.
In April, the government quietly changed its SBA lending rules so that now banks are prohibited from using SBA-backed loans to finance any business that has a direct or indirect connection to the marijuana industry.
This affects all 29 states where medical marijuana is legal, potentially choking off much-needed capital from institutional investors already wary of entering a legally grey industry.
The SBA rules already denied loans for companies directly involved in the industry, with their rules defining this as “a business that grows, produces, processes, distributes, or sells marijuana or marijuana products, edibles, or derivatives, regardless of the amount of such activity. This applies to personal use and medical use even if the business is legal under local or state law.” (Source: “SBA Policy Notice,” U.S. Small Business Administration, April 3, 2018.)
That rule has been in effect for a long while now.
The new rule, however, adds to the list companies that are indirectly involved.
One issue is that “indirectly” can lead to a broad interpretation.
The new rule defines these businesses as having “derived any of its gross revenue for the previous year (or, if a start-up, projects to derive any of its gross revenue for the next year) from sales to Direct Marijuana Businesses of products or services that could reasonably be determined to support the use, growth, enhancement or other development of marijuana.” (Source: Ibid.)
While it’s obvious that bong makers and other marijuana paraphernalia companies are going to be targeted by this rule change, other less likely businesses could be swept up in this new rule change.
Agriculturalists, garden supply sellers, potting suppliers, home centers, and a number of other ancillary industries could now be on the hook to lose SBA loans if they were found to have helped out marijuana growers.
This could have a huge impact on state economies that have come to view marijuana as a huge cash cow.
Pot stocks are also likely to be harmed indirectly.
While a good number of marijuana stocks don’t grow cannabis in the U.S., they still look for investments to come out of the country.
The rule change to the SBA may once again cause U.S. investors to become skittish, closing off some of that much-needed capital to marijuana stocks.
May Marijuana Stock Rally
While the marijuana news today may not be that positive, a good number of companies have so far begun to rally in May, leading some to be hopeful for the coming month.
Consider that both Canopy Growth Corp (OTCMKTS:TWMJF, TSE:WEED) and Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB) have had strong showings to start the month.
Canopy Growth stock has jumped by nearly 10% over the past five days, while Aurora stock has climbed nearly five percent.
Chart courtesy of StockCharts.com
These gains are impressive in such a short period of time and represent a nice change of pace from the marijuana stock downturn that the industry has been mired in for some time now.
Cronos Group Inc (NASDAQ:CRON), meanwhile, continues to suffer.
CRON stock first took a big hit when its financial report came out. Despite it displaying positive numbers, the company ultimately fell due to the perception that it is overvalued. CRON stock has dropped by about 15% over the past five days.
While the political news has swung back a bit out of cannabis’s favor in the marijuana news today, overall things are looking bright in the industry.
Many companies have shown steady gains so far in May, which is heartening considering the up-and-down performance we’ve seen for most of the year.
While there’s no telling if these gains will sustain, this could also be the beginning of the marijuana stock recovery I’ve been predicting for a while now.
I believe it still may be a bit too early to confidently call that, but there’s a chance that May could be the breakout month we’ve all been waiting for.