Cannabis Stocks are Thriving in the Crash

US stocks are in a rout.

The Dow and the NASDAQ are both down around 4% since this time last week.

Their fall has pushed down world stock markets, and this includes Canada. The S&P Toronto Stock Exchange is also down almost 3% since last week.

Yet among all the red, there are still some green shoots.

I am talking about cannabis stocks.

These were mostly unaffected by the stock market’s collapse.

Why are Cannabis stocks thriving?

On the contrary, some of the largest cannabis companies even saw large gains. Canopy Growth Corp [TSE:WEED] is up 16.8% since this time last week, Aurora Cannabis [TSE:ACB] increased by 13% and Aphria Inc [TSE:APH] saw their stock grow by about 14%.

They are all on a high as Canada is looking to start their marijuana sales tomorrow. Canada is the second country in the world to legalise cannabis.

The first was the small country of Uruguay, which started marijuana sales back in July 2017.

Today, there are three ways Uruguayans can access cannabis. They can either grow it themselves, join a club or buy it at a pharmacy.

A year on, how has the ‘experiment’ worked for the small South American country so far?

It is still too early to tell, yet Uruguay has definitely seen some challenges. The biggest one has come from the banking industry. In particular, the US banking industry.

You see, many Uruguayan banks route their transactions through US banks, which means Uruguayan banks can get sanctioned — and pharmacies may see their bank accounts closed — because of the US Patriot’s act.

As Brookings explained in the report ‘Uruguay’s Cannabis Law: Pioneering a New Paradigm’:

These large American banks, which have shied away from serving even U.S. domestic markets with recreational or medical cannabis, cited the USA PATRIOT Act as a basis for their claim and demand to shutter the accounts. Under Section 320 of the law, banks cannot serve accounts that commit an offense that “involves the manufacture, importation, sale, or distribution of a controlled substance (as that term is defined for purposes of the Controlled Substances Act)…” and that includes cannabis.

While some argued that the operations within Uruguay and serviced by Uruguayan banks should be outside the reach of that law, they are not. Section 319 of the USA PATRIOT Act extends the reach of the law to foreign (non-U.S.) banks with “an interbank account in the United States with a covered financial institution.”

While medical marijuana is legal in 30 states and recreational in nine states, under federal law it is still classified as a Schedule 1 drug, along with heroin and LSD.

US laws have affected legalisation in Uruguay.

With Canada following on their steps, they could run into similar problems. Yet Canada is not a small, far away country legalising, but US’s large neighbour.

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What would legalising marijuana mean for the world?

And the fact that Canada is joining the cannabis recreational club, and that even more US states are looking at the issue of legalisation in the coming midterm election, could mean we start to see some changes when it comes to marijuana.

As Brookings continued:

Canadian Prime Minister Justin Trudeau sees cannabis legalization as a positive part of his agenda, and he could encourage Canadian financial institutions to work with Uruguay as a signal of support both for an ally and for a common area of groundbreaking policy reform. What’s more, Canadian financial institutions’ willingness to work with Uruguay would raise the same hypothetical legal concerns among American financial regulators that Canada’s own system of cannabis banking would raise.

So long as they had interbank accounts in the United States, Canadian banks working with Canadian cannabis companies would fall under the same American legal jurisdiction as Canadian banks working with both Canadian and Uruguayan cannabis companies.

However, it is less likely that American banks would threaten large Canadian banks or follow through on those threats. This situation may provide Uruguay with its most promising opportunity to grant its cannabis-related businesses access to stable, safe banking.

Which could pave the way for more countries to legalise.

We are already seeing some signs of change.

Back in July, one of the largest US senate committees said that having marijuana classified as a Schedule I drug limited the amount of scientific research that could be conducted.

As they wrote: ‘At a time when we need as much information as possible about these drugs, we should be lowering regulatory and other barriers to conducting this research.

As we wrote before, legalising marijuana could help with the opioid epidemic.

And last week, Canopy Growth completed the first legal export of cannabis into the US for medical research. Let me repeat that, they legally exported into the US a drug that is illegal at the federal level.

There is no doubt that things are changing.

The world is watching Canada…and we could see even more countries legalising cannabis.

That’s why there has never been a better time to invest in it.

We saw some spectacular gains last week from the cannabis sector. And there could be even more to come.

Best,

Selva Freigedo,
Editor, Markets & Money

PS: Discover why these five household-name stocks could be the first to lose you money when Aussie stocks drop dramatically. Free report available now.


Selva Freigedo is an analyst with a background in financial economics. Born and raised in Argentina, she has also lived in Brazil, the US and Spain. She has seen economic troubles firsthand, from economic booms to collapses and the ravaging effects of hyperinflation, high unemployment, deposit freezes and debt default. Selva now writes from her vantage point here in Australia. She is lead Editor at the daily e-letter Markets & Money. And every week, she goes through each report and research note produced by our global network of trusted advisors to find the best investment opportunities for you in Australia and overseas. She packages these opportunities for you in Global Investor.


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