Some cannabis stocks are popping. Here’s why.

A number of cannabis equities are showing strong movement today as a cohort of pro-marijuana congressmen has taken the chance to potentially push some legalisation legislation through.

Cannabis stocks to watch

Major growers and distributors of cannabis, both medical and recreational, are starting to pop in trading.

Tilray is up 3.6% while Canopy Growth is showing similar numbers at 3.7%. Sundial Growers and Curaleaf had gained 1% and 3.7% respectively yesterday too. Aurora Cannabis joins its coteries in showing growth, clocking in at 3.7%.

Our Cannabis Blend, which groups together five leading growers, is also showing a 3% daily bump.

It’s clear that marijuana stocks are doing well today. The question is why?

Pro-cannabis bill tacking onto Pentagon budget resolution sends stocks upwards

The US military and the worldwide cannabis industry don’t seem like the ideal bedfellows. However, some congressmen have spotted an opportunity to tie the two together – or at least piggyback off the back of Pentagon budget bills.

On Tuesday, the House of Representatives’ version of the SAFE Banking Act was tacked onto the 2022 National Defence Authorisation Act (NDAA). The NDAA basically approves the Pentagon’s budget for the coming year.

For context, the SAFE Banking Act makes it legal for companies to make profit off the sales and marketing of recreational marijuana products. There are billions of dollars at play here, so if it passes into law, the stocks mentioned above could gain massive traction.

Quite cleverly, Rep. Ed Perlmutter of Colorado, one of the SAFE Act’s key exponents, rationalised the bill’s importance on a national security level. It’s an impressive piece of theatre to equate legalised cannabis with a safer, securer United States, but in a military-focussed nation like that, it’s an important piece of rhetoric.

Perlmutter said: “This bill will ill strengthen the security of our financial system in our country by keeping bad actors like foreign cartels out of the cannabis industry. This is a public safety and a national security matter — very germane to the issues at hand, dealing with foreign cartels.”

As the representative for Colorado, Perlmutter will have had first-hand experience with legalised cannabis. As of 2021, over $10bn worth of marijuana products have been legally sold in Colorado – the first state to fully legalise recreational use. Of that, the state government has taken a $1.6bn slice.

But what about crime? Perlmutter’s words are based on public safety. According to a report by the Colorado Department of Justice, between 2012 and 2019, the state reported a 68% drop in cannabis-related arrests. This stands to reason. Makes something legal that was once illegal then the arrest rate will drop.

However, the number of DUI arrests went up by 120% across the same period. Not a great look when making a public health argument.

The SAFE Act’s overall passage will presage a wider debate on whether to just federally legalise marijuana anyway, rather than legislate it piece by piece. It would perhaps be an easier option than a lengthy legal process.

It’s thought that, sooner or later, cannabis will become fully legalised for recreational use in the United States. If that happens, it may be a bellwether for other countries and usher in legalisation on a global scale.

But let’s not get ahead of ourselves. Movement is being made, which is good for cannabis stocks like those mentioned above, but there is still some way to go yet.

The likes of Tilray and Canopy Growth have posted strong growth numbers this year. Canopy’s Q1 revenues 2022, for example, were up 23% year-on-year in August.

Reports show Tilray’s revenue grew by 27% to stand at $513 million. The company also reported an adjusted EBITDA of $40.8 million, representing a massive 598% year-over-year increase.

There are big, big sums coming out of these companies – but everything now hinges on how the US proceeds regarding further Cannabis industry growth prospects and share price performance.