The North American marijuana index has shot up 1.8%, a high since mid February, after Canada took a significant step forward last Thursday in its quest to legalize recreational marijuana.
Initial caution followed the passing of the Cannabis Act, or Bill C-45; however, certain marijuana stocks are now enjoying sharp increases.
In the past thirty days, marijuana stocks have had a collective gain of 10.6%, though this remains far below early January highs. Most of the gains to marijuana stocks, to the surprise of some, have been south of Canada’s border; this signals a growing optimism among investors that the U.S. federal government might continue to relax its hard stance toward states in pursuit of legal recreational markets.
When the Index rose on Monday, every one of the benefitting marijuana stocks were U.S. based companies, such as CV Sciences Inc. (OTCMKTS), MariMed Inc. (OTCMKTS) and WeedMD Inc. (CVE:WMD). As such, the U.S. Marijuana Index saw its first high since the end of January, rising 5.3% to settle at $110.04.
Conversely, Canadian marijuana stocks fell on Monday, down 1.5%. This is the third session Canadian cannabis stocks have been down. However, prior to the Senate vote, Canada’s representation of the marijuana index had risen to highs spanning more than two months.
Though the Cannabis Act passed the Senate vote, Canada’s marijuana legalization has not been smooth sailing; many anticipate a lengthy and bumpy road lies ahead before reaching full legalization.
While the ride through Canada’s upper house was rough, the Cannabis Act eventually passed through Senate with a 56-30 vote. The bill emerged, however, as a different version than the one agreed upon by the House of Commons in November, with more than 40 amendments made.
It is unlikely that the House will agree with all of these amendments. This means there will likely be more rough patches on Canada’s path to full legalization, and the start of recreational sales.
Cannabis stocks and investors have watched with anticipation and uncertainty as Bill C-45 has undergone its journey through Canada’s parliament.
Bill C-45 passed in its first reading in the Senate late last November, only to be nearly defeated after much debate and contention its second time around in March. After passing its second reading, it went on to be studied by the Standing Senate Committee on Social Affairs, Science and Technology.
Following the study by the Standing Senate Committee, a report was presented containing 34 amendments, which the Senate adopted at the end of May. Among the amendments, some small changes and some substantive, the most controversial involved granting power to provincial and territorial governments to crack down on homegrown marijuana operations. However, Canada’s federal government deemed this amendment unacceptable, opening itself up to potential pushback from the Senate.
When the bill reached its third reading at the end of May, senators debated the proposal of further amendments, concluding with the adoption of some, and the rejection of others.
A few indigenous senators had requested a delay to implementation of the bill in early May, to ensure there would be sufficient consultation prior to its passing.
Ultimately, the Government stepped in and offered funding for addiction and mental health services, consulting services for revenue sharing, and navigational support through the process of cannabis licensing for indigenous businesses. The bill emerged with 45 amendments, one of which gave permission to limit home grown marijuana.
On June 7, the bill reached its final Senate debate, passing with a historic vote in favor of lifting the country’s 95-year legislation prohibiting recreational marijuana. Its passing through the final Senate vote, however, does not guarantee it will pass through the House of Commons with all its current amendments.
Marijuana stocks must wait and see if the House accepts or rejects the amendments proposed by the Senate.
Should the House insist on more proposals or reject the current ones, the Senate may respond with its one insistence. The back and forth debate will continue until both sides have agreed upon the language of the bill, after which, it will be sent on for Royal Assent.
Royal Assent generally follows quickly after the passing of a bill, though even this act does not immediately set provisions for the bill in force. The Governor in Council must often fix a date for the bill to be set in motion.
Hence, the hesitation of cannabis stocks and investors initially following the good news of the Senate vote is understandable.
Industry players understand that a framework for the law does not mean the numerous requisite federal regulations have been put in place.
According to Canada’s Health Minister, Petitpas Taylor, provinces and territories will require two or three additional months after the bill is passed to prepare for retail sales. One of the agreed upon requirements of Bill C-45 is that the provinces implement sales on the same date, with regulatory frameworks and distributary regimes in place. Waiting for all the provinces to reach this point will likely mean further delay.
This essentially means Canadians have a longer wait ahead of them before buying and consuming recreational marijuana is legal, and marijuana companies are facing additional months of uncertainty. Even with all of the potential delays, investors should keep in mind that the passing of the Cannabis Act still represents a significant breakthrough. The patience and risk of both businesses and investors should pay off.
(For related news on Canada’s impending legalization, read Want a Cheaper Pot Brownie? Three Inexpensive Cannabis Stocks to Buy)