Posted November 15, 2022
By Ray Blanco
Prepare for a Pot Stock Pop
Markets rallied hard last week when inflation numbers from the U.S. Bureau of Labor came in weaker than expected.
Then, that rally continued today as more numbers hit the tape, showing October’s producer price index (PPI) declined to 8% annually.
That’s down from 8.5% in September after Bloomberg-surveyed economists forecasted 8.3%.
Moreover, the annual core PPI also beat expectations, coming in at 6.7% year over year, compared to a consensus of 7.2%.
With lower numbers like these suggesting cooling inflation, there is hope that the Fed Reserve might slow down its rate hiking schedule, which would help lead the market into a year-end rally.
Then, we have the election…
Despite last-minute expectations, we aren’t seeing a huge sea change in the DC’s halls of power.
As of right now, it’s looking like Democrats will remain in control of the Senate.
However, it still looks like control of the House will change hands, albeit by small margins.
For cannabis investors, a ray of hope for legalization is appearing on the horizon…
The Biden Admin is looking at rescheduling pot and assigning it a less restrictive status, and a lame duck session in Congress looks increasingly likely to hold a vote before January.
The final contours of the bill are still being worked on, but at a minimum, some changes regarding the financial system and the cannabis industry will be in the cards.
Hot on Pot
Cannabis legalization is getting a big push this year. Earlier this year, the House of Representatives voted to push H.R.3617 to the senate.
This is a cannabis legalization law more commonly known as the Marijuana Opportunity Reinvestment and Expungement Act (MORE) Act.
That expectation is showing favorably in the valuations of US cannabis companies, with AdvisorShares Pure US Cannabis ETF (NYSE: MSOS) rising after hitting rock bottom at the end of September.
The cannabis market had been continuously beaten down for the past year after a pop back in 2021, now, it’s looking like these companies have nowhere to go but up.
Several states held votes on cannabis initiatives, with legalization measures passing in Maryland and Missouri.
Next week, we’ll have cannabis hearings in Congress, helping pave the way to what will hopefully be a bill to be signed into law by Biden.
This tells me that cannabis companies have a bright future ahead of them.
Although legal in many states, cannabis companies can only do so much to operate their business since the substance is still illegal federally.
For example, access to federally regulated banking will drastically change how cannabis companies operate.
With current laws, the marijuana industry is cash only, meaning firms must spend hundreds of thousands on security detail to keep the cash safe and to transport it from location to location.
Having that cost reduced will certainly help these companies' bottom lines.
Another big benefit from federal legalization would be the ability for institutional investors to put dollars behind the best names in the business.
Opening up the doors to investors will allow for rapid expansion and growth, further legitimizing cannabis companies as real businesses.
Finally, Federal legalization would also do a lot to destigmatize the use and sale of cannabis.
Naturally, all of these benefits will be incredibly bullish for publicly traded cannabis names!