It’s been a wild ride for marijuana stocks so far this year. Despite the recent highs, there are still plenty of reasons to be cautious about investing in cannabis companies. But if you’re looking to get on board now, here are three good options that have just crossed into Canada.

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Points to Remember

  • Senate Majority Leader Chuck Schumer has presented a bill that would legalize marijuana on a federal level.
  • This law would certainly be a major trigger for many marijuana companies, but it won’t be simple to pass in the Senate.
  • Even if the proposed law is defeated, there are still some cannabis companies worth considering for investors.

The House of Representatives hasn’t been much of a stumbling block in the fight to alter marijuana regulations in the United States. The United States Senate has always been a struggle. 

Senate Majority Leader Chuck Schumer, on the other hand, presented proposed legislation to decriminalize marijuana at the federal level, which he intends to put before the Senate this week. Senator Ron Wyden, the chair of the Senate Finance Committee, has already expressed his support for the measure (D-Ore.). 

Is it time to buy marijuana stocks now, with the possibility of significant federal cannabis legislation on the horizon?

Hand holding a cannabis leaf in front of a U.S. flag.

There are many possible winners.

As you would imagine, if marijuana is decriminalized on a federal level in the United States, there will be a lot of winners. Cannabis growers in Canada have long wished to tap into the massive market south of the border. They can’t, however, list their shares on major U.S. stock markets since cannabis is still illegal on the federal level.

Canopy Growth (NASDAQ:CGC) stands out as a particularly probable winner if that barrier is eliminated. Canopy already has an option to buy Acreage Holdings, a cannabis company headquartered in the United States. Constellation Brands, headquartered in the United States, is a major partner (and the company’s biggest stakeholder). If Sen. Schumer’s proposed measure becomes law, Canopy may be the first to enter the US market.

However, don’t ignore the possibilities for businesses who already have a presence in the United States. For example, Cresco Labs (OTC:CRLBF) is one of the most attractively priced multistate cannabis businesses. Cresco’s stock is inexpensive relative to other Canadian marijuana companies since the business is unable to list its shares on a major American stock market.

Trulieve Cannabis (OTC:TCNNF), one of the largest cannabis companies in the United States, has a similar tale. Trulieve’s market value would reach $10.3 billion if it traded at the same price-to-sales ratio as Canopy Growth, a significant increase over its present market worth of $6 billion.

A roadblock in the Senate

With Sen. Schumer’s backing for federal cannabis legalization, a significant roadblock has been removed. Former Senate Majority Leader Mitch McConnell would not even consider introducing a measure for significant cannabis reform to the Senate floor while the GOP controlled the chamber.

However, there is still a significant possible stumbling block in the Senate. Any bill brought before the chamber may be stymied by a single senator who chooses to employ the filibuster. As a consequence, in order for Sen. Schumer’s plan to pass, he will need 60 votes. Right now, it’s uncertain if those votes can be found. 

Democrats and Republicans are divided 50-50 in the Senate (including two independents who line up with Democrats). If all Democrats and independents voted together, 10 GOP votes would be needed to avoid a filibuster.  

According to polls, the majority of Americans favor cannabis legalization. Thirty-five states have legalized marijuana for medicinal or recreational use. There’s no assurance, however, that enough Senators will vote in accordance with their people’ wishes on this subject.

Now is not the time to back up the vehicle.

Investors should probably not back up the truck and load up on marijuana companies just yet, given the political uncertainty in the Senate. That isn’t to say that there aren’t particular stocks worth investigating.

Cresco Labs continues to grow in its main regions, and I’ve previously highlighted two cannabis companies that seem like excellent buys regardless of what happens in Washington, D.C. It has also expanded into new states, such as Florida and Ohio.

Innovative Industrial Properties is another company that I like (NYSE:IIPR). The business is a REIT that specializes on the medicinal cannabis industry in the United States. IIP may be better off in certain ways if federal cannabis legislation isn’t enacted. Even if the proposed law receives enough votes to pass, I believe IIP will be able to continue to expand steadily for many years to come.

Tilray is a marijuana company that has had an amazing run in the past year. The company’s stock price increased by more than 300% in 2018. Reference: tilray.

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