Credit Suisse informed investors that it would no longer execute transactions for certain cannabis companies with US operations or hold them on behalf of clients back in March. The weed industry is booming, with Cannabis being legal in Canada and a total of 36 states. It would seem that Credit Suisse’s decision is based on the fact that cannabis remains illegal under US federal law, which seems to pose legal risk for investment banks who conduct business with companies which trade or produce cannabis.
The US House of Representatives passed a bill, H.R. 1996 otherwise known as the SAFE Banking Act, that would prohibit federal regulators from penalizing banks who provide banking services to cannabis businesses. This bill seems to fall short of a full green light of cannabis legalization in the US, however, may be a sign of legalization within the near future. Cannabis stocks still seem to be on the rise according to Nasdaq on May 7, 2021. Nasdaq reported that major players in the cannabis industry are seeing shares increasing, including Tilray (TSE: TLRY); Canopy Growth (NASDAQ: CGC); and Sundial Growers (NASDAQ: SNDL). Nasdaq attributes the rise in shares to a bill making its way through Kansas legislature. The bill would approve cannabis for medical marijuana purposes. The bill passed the House and is on its way to the Senate. Kansas seems to be followings its neighbors, Missouri and Oklahoma, legalizing the use of medical marijuana in 2018. Nasdaq also attributes the rise in shares to Jeffries, which upgraded Tilray from “underperform” to a “buy rating” and is calling Tilray’s merger with rival company, Aphria, a “perfect match”.
Investors are hopeful for legalization of cannabis federally in the United States, however, it does not seem imminent. According to Bank of America’s (NYSE: BAC) BofA Securities, the global cannabis market could grow to $300 billion by 2030. Just recently, Aurora Cannabis (NYSE: ACB), announced a $300 million at-the-market share offering. In Aurora’s filings with the SEC, the Company suggests that the proceeds of the sale would be used towards finding an acquisition in the US market.
The tremendous potential and growth of the cannabis industry comes along with risks to investors. Investors will have to monitor and track companies’ projections and public statements. Lowey Dannenberg is positioned to monitor and assist investors in this growing sphere.
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