With Election Day Sweep Across Four New States, Recreational Marijuana Sales Will Encompass One -Third of Americans In USA

New Jersey, Arizona, Montana and South Dakota voters approve legal adult cannabis sales, pushing U.S. recreational market to 15 total states with more than 110 million residents. After Election Day 2020, one-third of Americans live in states that have decriminalized cannabis.

New Jersey, Arizona, Montana and South Dakota voters approve legal adult cannabis sales.

 

The largest state by population to approve cannabis sales on Tuesday was New Jersey, where the measure enjoyed a margin of better than 2-to-1, and it could push some of is neighbors to do the same.

“We anticipated an influx of negative publicity and press trying to block the vote, none of that happened,” said Rob DiPisa, co-chairman of the Cannabis Law Group at law firm Cole Schotz.

“New Jersey will be a big deal because it will be the first mid-Atlantic state to legalize cannabis for adult use. It’s also between Pennsylvania and New York, two states that have been discussing legalization for some time,” DiPisa said. “New Jersey will influence those neighboring states and usher them over the edge, especially because COVID-19 has created big budget deficits.

The national election also could have an effect on cannabis-legalization efforts. President-Elect Joe Biden and his Democratic running mate, Sen Kamala Harris, have voiced support for decriminalizing marijuana on a federal level. Incumbent President Donald Trump has previously voiced support for decriminalizing marijuana but has not openly endorsed Democratic pushes in Congress for pro-marijuana initiatives such as the SAFE Banking Act, which could only grow if the Senate flips.

“Arguably, just as important to continued cannabis reform as who occupies the White House is which party controls the Senate,” Canaccord Genuity analyst Bobby Burleson wrote in a note on the elections. “With a Democratic-controlled House of Representatives that has been making significant strides as of late in drafting new cannabis-related bills, the Senate has been the major roadblock to virtually all of these initiatives’ ability to become law.”

Biden has voiced support for reclassifying marijuana in the Controlled Substances Act and making medicinal marijuana federally legal. Burleson said that could end punitive taxes on U.S. pot companies and bring their effective tax rates down from more than 50% to closer to 21% of net income. 

The largest American cannabis businesses — known as multistate operators, or MSOs — maintain marijuana businesses in several states despite the federal prohibition on the drug. They are not allowed to list on the major stock exchanges in the U.S. because the business is federally illegal, though, so many have fled to a small Canadian exchange and list their shares over-the-counter in the U.S.

Some of the MSOs are already operating in states where medical marijuana is legal, including New Jersey and Arizona. Burleson pointed out that Curaleaf Holdings Inc. is the No. 1 operator in New Jersey and No. 2 in Arizona, behind Harvest Health & Recreation Inc. a top operator in Pennsylvania’s medical market, which the analyst believes could turn to recreational operations soon.

“MSOs are well-suited to survive as the market in these new states come online and get more saturated. … It’s those who perfected the craft and can operate lean that will survive,” DiPisa said.

“This is not the industry of five years ago,” he said. “It moves in dog years.”

The legalization of marijuana in Canada in late 2018 as well as large states such as California led to a boom in investment in marijuana companies, but the companies and their stocks have struggled greatly amid shifting regulations, high tax rates and continuing black-market sales.

Much of the remaining investment in the space is betting on the U.S. opening up, with large public Canadian companies can list on the major U.S. exchanges because recreational pot is legal in Canada — acquiring warrants to own MSOs and other U.S.-focused businesses if the sale of recreational marijuana becomes federally legal.

Jason Wilson, ETFMG cannabis and banking expert said cannabis stocks will likely remain choppy in the near term.

“In the near term, volatility will primarily be driven by the uncertainty surrounding the still to-be-determined election results. In addition, a number of global cannabis companies will be reporting earnings next week, so we can expect to see significant price movement relating to that. A bit further down the line, we will continue to see volatility relating to events occurring outside of the United States,” Wilson said.

He cited as one example a December United Nations vote on recommendations from the World Health Organization to reschedule cannabis, as well as Mexico’s court mandated December deadline for finalizing federal legislation relating to adult-use cannabis.

Sources: Vary

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