The cannabis industry is watching closely to see how next week's elections will reshape US marijuana policies and markets in the coming years.
Cannabis legalization is on the ballot in five states, and control of the White House and Congress will help determine the direction of federal policy as well. Cannabis is legal for at least some uses in more than half of states but illegal on the federal level.
Cowen analyst Vivien Azer told investors she's expecting a "Biden Blue Wave," which entails a Democratic-majority Senate and a victory for Democratic Presidential candidate Joe Biden.
That scenario would provide the biggest catalyst for the cannabis industry, Azer said in an October 29 note titled "Last Minute Predictions," because it would increase the likelihood of passage for cannabis-related legislation in Congress.
"[W]ith a Biden victory and a Democratically-controlled Congress, we would expect regulatory momentum to continue into 2021 and beyond," Azer wrote.
Such a result would affect proposed legislation on issues like the substance's legal status, easier access to banking, and taxation.
The US Senate is controlled by Republicans, while Democrats have the majority in the House. That's left federal legislation to change the legal status of cannabis, or give companies more access to the banking system, at a standstill.
A Biden victory would likely create a more favorable environment for the cannabis industry. While the Trump administration and Republican party have been quiet on federal marijuana policy, Biden and his running mate Sen. Kamala Harris have provided a clearer, albeit still limited, picture of what cannabis policy would look like should they win.
Harris said at the vice-presidential debate earlier this month that a Biden administration would decriminalize marijuana at the federal level. Her remarks sent cannabis stocks soaring the next day.
Cowen predicts that under a Biden-Harris administration and Democratic Senate, the STATES Act would likely pass in Congress in the next two years. The MORE Act may gain momentum as well, though Cowen says it would likely pass at a later date if Democrats remain in control through the 2022 midterm elections.
The STATES Act lets individual states regulate their cannabis markets, and limits federal enforcement. The MORE Act would remove cannabis's status as a controlled substance, expunge criminal records related to the drug, and effectively decriminalize cannabis at the federal level.
The SAFE Banking Act would provide protections for banks looking to work with cannabis businesses. The cannabis industry has limited access to banking services and capital because under federal law, it remains an illicit industry
Azer said passage of the MORE Act could let Canadian cannabis companies start operating in the US. In this instance, she continued, Canadian giant Canopy Growth would be best positioned to enter the US.
There are five states with cannabis legislation on the ballot this year. Of the five, Arizona and New Jersey are most likely to legalize recreational cannabis, according to Cowen.
Legalizing adult-use cannabis in New Jersey, which currently has a medical program, may spur other states in the Northeast — like New York, Pennsylvania, Connecticut, and Rhode Island — to do the same. A new recreational Northeast market could increase the total US cannabis market by up to $6 billion in the next five years, according to Cowen's estimates, to a total of $40 billion.
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