U.S. Marijuana Policy May Turn Favorable for U.S. Marijuana Stocks
Unless you’ve been living under a rock, there’s only a snowball’s chance in hell that you missed the biggest marijuana industry news this month. That is, Canadian marijuana company Cronos Group Inc (NASDAQ:CRON) began trading on the Nasdaq.
But what’s the big deal about it? I’ll tell you what; Cronos is a marijuana producer and marijuana production is illegal in the U.S., at least on the federal level.
So, how did it make it there? Well, the law of the land is such that it allows Canadian marijuana growers to be listed on U.S. exchanges.
The Canadian laws, however, are not as welcoming to U.S. marijuana companies. Here’s the catch: the Canadians do not allow any company to be listed on their exchange if it’s forbidden by federal law in the company’s home country. That strikes off all marijuana growers in the U.S.
So, in a nutshell:
- America allows Canadian marijuana producers to be listed on U.S. exchanges, even though marijuana production is largely illegal in the U.S.
- Canada doesn’t allow American marijuana companies to be listed on Canadian exchanges, even though marijuana production is legal in Canada.
In other words, U.S. marijuana producers are rightfully bitter that they’re (almost) universally disadvantaged compared to their Canadian peers. (Source: “Canadian marijuana company’s Nasdaq listing bodes well for the industry, but US companies still face barriers,” CNBC, March 6, 2018.)
Cronos’ listing on the U.S. exchange has given Canadian pot companies a leg up. For Cronos, in particular, this has been a game-changing development. Just look at its stock price trajectory for the past one month.
Chart courtesy of TradingView.com
It makes perfect sense, though. Exposure to U.S. investors garners more visibility for the company, which in turn may help it in securing fruitful deals for raising capital, and ultimately translate into better value for its shareholders.
It may seem like a long shot but there are clear-cut benefits to be listed on one of the two largest exchanges in the U.S. and one of the largest in the world.
This is exactly why more Canadian companies are planning to migrate south. The second-largest Canadian marijuana grower, Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB) is the next major player seeking to get itself listed on the U.S. exchange. The leader of the pack, Canopy Growth Corp (OTCMKTS:TWMJF, TSE:WEED) is likewise mulling over the idea.
So, there is a good chance that Cronos’ initiative will spur a wave of Canadian pot listings on U.S. exchanges. According to Aurora’s chief, Terry Booth, Cronos has managed to break the barrier for the Canadian pot growers. “It’s excellent for everybody,” says Booth. (Source: “Aurora Cannabis eyeing Nasdaq, NYSE listing as Canadian pot goes global,” Financial Post, March 7, 2018.)
But what does all this mean for U.S. marijuana companies? It means war! Plain and simple.
U.S. marijuana producers are already losing the fight to Canadian producers, courtesy of unfavorable federal drug laws. This new development just strikes another big blow to them.
So, in the aftermath, we expect to see an outcry from the U.S. growers as they see their Canadian counterparts encroaching upon their local market. And there’s a good chance they may be heard this time.
I understand if you argue that this will be a pipe dream under Attorney General Jeff Sessions. After all, he’s been the one pulling the strings on marijuana laws from behind the curtain. And we know that he hates everything marijuana.
I’m also well aware that just as the marijuana market was beginning to bloom, Sessions once again put his foot down on it. Just days after California became the first state in the country to start selling recreational weed, Sessions rescinded the Omaba-era pro-marijuana memo, sending marijuana stocks into a tailspin.
But this happened back in January. Things changed in the following month.
Now that the press is talking more and more about the Sessions-Trump disconnect, this may have opened a tiny window of opportunity for the marijuana industry. There’s a good possibility that the U.S. marijuana industry may be able to strike the right note with Trump while this issue is hot.
Regardless, we believe that the marijuana industry will be moving at a rapid pace in 2018. New developments taking on both sides of the 49th parallel are paving the way for the industry’s growth. There are obviously some speed bumps here and there, but they pale in comparison to the positive developments.
While 2018 may be the year for Canadian pot stocks, U.S. marijuana companies may get equally lucky if the Trump administration somehow tones down its anti-marijuana narrative. It’s certainly possible.
The growing political discord between the administration may give the industry a chance to make its case to the president and receive a rubber stamp of approval.
We’re keeping close tabs on the developments. Tune back to Profit Confidential every day for daily updates on the marijuana industry.