Despite a critical landmark positive vote in the US House of Representatives, experts say investors will still have to wait longer for significant changes in the cannabis space.
The Secure and Fair Enforcement Banking Act of 2019, designed to protect banking actions for marijuana companies in the US, was approved by in the House of Representatives on Wednesday (September 25) by a vote of 321 in favor, compared to 103 against.
The positive vote for the bill represents the first cannabis related legislation to pass through the US Congress. This bill would create protections for banks and other financial institutions willing to offer banking services to cannabis and hemp companies in the US.
The progress for this bill, commonly referred to as the SAFE Banking Act, has gained a bellwether status as a significant catalyst for the state of cannabis stocks.
However, financial experts said investors might have to wait for fundamental changes to see any kind of run in the market.
After a harsh summer for the marijuana stock universe, in which a pullback was recognized by the market, optimism about the effect of a positive vote in the House of Representatives has been increasing.
“I’d be careful. They could rally, but I wouldn’t suggest that’s going to be something enormous,” Matthew Pallotta, equity research analyst at Echelon Wealth Partners, told the Investing News Network (INN) on the eve of the vote. Pallotta covers the US market and multi-state operators (MSOs) for Echelon Wealth.
The analyst said a positive vote today would represent a solid development for the sentiment in the market, but, fundamentally, the changes will not be there yet.
“I think the market realizes that one of the biggest hurdles remains — the Senate — and there’s nothing really concrete there yet,” he said.
The bill, which now moves onto its path in the Senate, would prohibit federal authorities from punitive action against banks for working and offering services to marijuana and hemp businesses.
This would offer banking relief to US-based companies, including the popular MSOs, operating in the space.
Marc Adesso, veteran cannabis attorney with law firm Waller Lansden Dortch and Davis, told INN presently it’s unclear how the bill will fate in the Senate.
The lawyer said it will be difficult to predict the fate of the bill at the Republican-controlled Senate if it clears the House today.
In order to pass through the House, the act must get 290 votes, which represents a two-thirds majority. According to a statement from the National Cannabis Industry Association (NCIA), the bill has 206 cosponsors in the House.
In a series of tweets, Todd Harrison, chief investment officer with investment firm CB1 Capital, said he expects the bill to pass the Senate at a later date this year.
The House votes today; we think but few believe it’ll pass the Senate. Our view: #hemp / banking language was added as horse-trade w Senate leadership. We expect it to pass, perhaps by Thanksgiving, but that’s pure speculation.
— Todd Harrison (@todd_harrison) September 25, 2019
Looking ahead, Harrison said the potential events that could shake the industry are the closing of merger and acquisition transactions in the US following requests from the Department of Justice and a ramp-up in the election talk surrounding the legalization of the drug.
Nawan Butt, associate portfolio manager Purpose Investments, told INN there’s a lot of optimism in the industry as a whole for the potential for this bill to pass in 2019.
“The industry is hanging on to the hope that this would make it a lot easier for a lot of these bigger plays to grow a lot quicker, capture market share and bring over the black market to legal channels,” he said.
Aaron Smith, executive director of the NCIA, said the SAFE Banking Act would offer a chance to small businesses, including those owned and operated by people in marginalized communities, to participate in the industry by way of gaining access to traditional lending.
“Current banking regulations disproportionately hurt small businesses, women, and people of color,” he explained. “We cannot afford to wait any longer while they are being excluded from the opportunities created by legal cannabis markets.”
Editor’s note: This story and headline were updated to reflect the vote in the House of Representatives.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.