President-elect Joe Biden will be good — but not great — for the cannabis industry, analysts, executives, and other experts say.
While Biden has stopped short of endorsing federal legalization, both he and Vice President-elect Kamala Harris, have campaigned on decriminalizing marijuana.
Marijuana decriminalization is a key pillar of Biden's criminal justice reform plan. The campaign said Biden's administration would move cannabis from Schedule I of the Controlled Substance Act (CSA) to Schedule II, which would allow more researchers to study the drug's impacts as both a medicine and a consumer product.
On top of that, the Biden administration has said it will back legislation to expunge the records of those convicted for marijuana-related crimes. Biden also supports cannabis legalization for medical uses and wants to allow states to legalize recreational cannabis and create commercial markets without federal interference.
Biden's transition website had no mention of cannabis policy as of Tuesday, however.
Still, analysts had said a clear Democratic win in the US Congress would be the most positive outcome for the industry. Democrats are set to keep control of the House, but it isn't yet clear which party will have the advantage in the Senate. Two Senate seats in Georgia are still up for grabs as the candidates prepare for runoffs in January.
"[A] win by Vice President Joe Biden potentially suggests an executive branch more amenable to cannabis reform," analysts from the investment bank Stifel wrote in a November note. "But with Republicans likely keeping control of the U.S. Senate, we believe this suggests difficulty for cannabis reform achieving success through Congress."
Analysts from Jefferies viewed the results of the election as a strong signal that Americans are becoming more accepting of legal marijuana.
"While there is much debate about the potential inability to progress with cannabis legislation if the Dems do not take the Senate (which is still possible with the January Georgia runoff), we think we are now actually at a point, whether Democrat or Republican Senate, where it can't be ignored," the analysts wrote in a November note.
"It is getting so big that the government will be aware of an even greater risk of not having some form of federal oversight for one, but also, two, so big that it is missing out on potential tax revenues into a likely recession," they added. "What's more, this is an area which clearly has bi-partisan support among all voters."
A Gallup poll released in November found that 68% of Americans support legalizing marijuana, including 79% of voters between the ages of 18-29. However, while 83% of Democrats support marijuana legalization, only 48% of self-identified Republicans do.
Cannabis stocks rose when it became clear that Biden would be the next president. The gains continued the following week: Aurora Cannabis is up over 18%, while Canopy Growth, the largest Canadian cannabis company, rose more than 8%. Curaleaf, the largest US cannabis company, rose over 4%, while Green Thumb Industries rose just over 3%.
In the intervening month, cannabis stocks have continued to gain, spurred by the House's passage of a bill to federally decriminalize cannabis.
And beyond Biden's projected victory, cannabis reform swept 5 states where it was on the ballot on November 3, including the prized states of New Jersey and Arizona. Once these ballot measures go into effect, one-third of the US population will have some access to legal cannabis.
Marijuana decriminalization is a key pillar of Biden's criminal justice reform plan
Still, marijuana companies face some headwinds. Biden's proposals to loosen restrictions on marijuana would make it easier to do research, but they would not eliminate 280E, a provision of the tax code that raises costs for cannabis firms.
Harris, for her part, sponsored legislation in the Senate called The Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act, which would remove cannabis from the CSA entirely and expunge the records of those convicted for marijuana-related crimes.
The House passed the MORE Act mostly along party lines last week, though the bill faces dim prospects in a Republican-controlled Senate.
A Republican Senate would be an obstacle to cannabis reform
The balance of the Senate could hinge on critical runoffs for both Georgia seats in January.
Despite Biden's more friendly position on cannabis reform than his predecessor, a Republican-controlled Senate would be an obstacle to cannabis reform. Senate Majority Leader Mitch McConnell opposes bringing cannabis legislation to the Senate floor, meaning that the MORE Act won't get a shot in the Senate.
A different cannabis reform bill, the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, which would allow states to determine their own cannabis policies without federal interference, is supported by more Republicans than the MORE Act, though it's unclear whether McConnell would allow a vote.
It's also possible that the SAFE Banking Act, a bill that would allow cannabis companies to access banking services like any other industry, will be tacked on to the next version of the COVID stimulus bill passed by Congress, executives told Business Insider.
If Democrats win control of the Senate, Sen. Chuck Schumer has said he would prioritize cannabis legalization — specifically, the MORE Act.
Canadian cannabis companies may still be kept out of the US
Stifel analysts say that the Canadian cannabis producers — especially those like Canopy Growth and Aphria that have inked deals to enter the US market when permissible — will still be precluded from operating in the US because cannabis is unlikely to be legalized federally.
But that will provide an opportunity for US cannabis companies, like Green Thumb Industries and Curaleaf, to continue growing before Canadian cannabis companies and established companies from other industries start snapping up market share.
Read more: New Jersey just legalized recreational marijuana, opening up a market that could near $1 billion
"We believe descheduling would upend the current industry suggesting enhanced competition for MSOs [multistate operators or US cannabis companies] in sustaining and further their positions with the competitive threat from large established U.S. consumer companies who tout infrastructure, brands, and large cash generating businesses that could support investment behind nascent opportunities," the analysts wrote.
Despite the uncertainty in the Senate, Biden's cannabis plan offers cannabis companies much more certainty than they experienced under Trump. His administration — under former Attorney general Jeff Sessions — repealed Obama-era guidance allowing states to set their own cannabis policies without federal interference.
And Attorney General Bill Barr has pushed the Department of Justice to investigate cannabis industry mergers under antitrust laws, based on what a whistleblower contends is a personal dislike of marijuana.
This story was updated on November 9 with new information, including polling data, analyst commentary, and stock moves. It was updated again on December 8 with the results from the MORE Act vote in the House.
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The ultimate guide to marijuana legalization: All the states voting on cannabis reform, the probability of success, and which stocks could benefit the most
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