Cannabis Stocks Jump on Georgia Election News

Marijuana stocks surged on Wednesday as Democrats claimed control of both houses of Congress. That could pave the way to an expansion of legal marijuana sales.

The Associated Press declared Georgia’s Raphael Warnock and Jon Ossoff winners in their respective elections, cementing a 50-50 Senate, with Vice President-elect Kamala Harris tilting the scale toward Democrats with a tiebreaking vote. With Mitch McConnell no longer majority leader, he’ll have a harder time blocking legalization.

Shares of U.S. growers—which can’t list shares on senior U.S. exchanges because weed is federally illegal—soared on the news. Curaleaf Holdings (ticker: CURLF) jumped 8.3%, Green Thumb Industries (GTBIF) rose 7.6%, and Trulieve Cannabis (TCNNF) rose 8.9%. Cresco Labs (CRLBF) rose 3.8%.

Canadian firms, eager to enter the larger U.S. marijuana market when it’s legal to do so, joined in the fun. Canopy Growth (CGC) was up 11.6%. That company has deals to with two U.S. growers, which are triggered by changes at the federal level. Aurora Cannabis stock (ACB) rose 6.2%. Cronos Group stock (CRON) jumped 15%. ETFMG Alternative Harvest (MJ), an exchange-traded fund with exposure to cannabis firms, jumped 8%. The ETF has soared about 42% since the Nov. 3 election. “This is another big win for cannabis—although legalization was not on the ballot in Georgia, with a Democratic majority in the Senate we’re likely to see support for cannabis decriminalization,” Cresco Labs CEO Charlie Bachtell said in an emailed statement. He added that such efforts could lesson the burden on the U.S. justice system and improve the industry’s access to capital.

Meanwhile, New York Democratic Gov. Andrew Cuomo announced a proposal to legalize cannabis in the state.

“This program will generate much-needed revenue, while allowing us to support those that have been most harmed by decades of failed cannabis prohibition,” Cuomo said on Twitter.

The election increases the likelihood of federal bills decriminalizing marijuana and allowing legal sales in states that approve them passing through Congress, Alliance Global Partners analyst Aaron Grey wrote in a note Wednesday.

That would allow U.S. growers to access capital markets and list their shares on the New York Stock Exchange or Nasdaq. That would allow major U.S. consumer packaged-good companies to enter the space. Altria Group (MO) and Constellation Brands (STZ) invested in Canadian growers Cronos and Canopy Growth, respectively.

“Given Democrats will be looking to address issues such as COVID, taxes and health insurance, it remains uncertain how much of a push will be made for cannabis reform—though we believe cannabis bills could also be included in a broader bill vs a stand alone bill,” he noted.

Jefferies analyst Owen Bennett wrote in a note on Wednesday that he believes existing U.S. growers are the best positioned to benefit from legislative changes, but notes that some institutional investors will need to wait until such measures pass to invest, due to the drug’s legal status.

“The value creation potential in US cannabis is a generational wealth opportunity,” he wrote. “Despite this, ownership is still heavily skewed retail. Current legislation is a key contributor here. Cannabis in the US remains federally illegal, and as such it is also not possible for US names to list on a major exchange.”

BMO Capital Markets analyst Tamy Chen wrote in a note on Wednesday notes that such legal changes would allow Canadian growers to enter the U.S. marijuana market.

She notes that the challenge for other Canadian firms would include having sufficient capital and finding the right U.S. growers.