Cannabis banking bill ‘faces an uphill climb in this Congress,’ analysts warn before Senate hearing

May 10, 2023 · Market Watch

Cannabis stocks have scored a boost from optimism around Thursday’s hearing on a bill that would protect banks that work with the industry, but some analysts are downbeat on the SAFE Banking Act’s chances of becoming law.

“We believe the cannabis banking effort faces an uphill climb in this Congress, but there will be mile markers on the road ahead that could make us more optimistic,” said BTIG’s Isaac Boltansky and Isabel Bandoroff in a note.

“Before lining up for another kick of Lucy’s football, we will need to see the following in the Senate: (1) Democrats commit to move a tailored cannabis bill similar to the SAFE+ package that took shape last year; (2) a clear avoidance of more sweeping cannabis proposals such as the CAOA; and (3) a strong show
of bipartisan support in the Senate. At that point, the focus will shift to House Speaker McCarthy, which requires a wholly separate assessment of the political calculus,” they said.

Legislation dubbed “SAFE Banking Plus” — with the “Plus” referring to some criminal-justice reform — found traction last year but ultimately was left out of a big defense measure and a year-end spending package.

The CAOA refers to the Cannabis Administration and Opportunity Act, a wide-ranging Democratic bill that was introduced in the Senate last year but didn’t advance.

House Speaker Kevin McCarthy is critical because his Republican Party took control of the House of Representatives in January after wins over Democrats in November’s midterm elections. One key McCarthy ally, GOP Rep. Patrick McHenry of North Carolina — who chairs the House Financial Services Committee — said in March that the SAFE Banking Act is “not a priority” for him.

Height Capital Markets analyst Benjamin Salisbury said in a note that he gives the cannabis banking bill a 10% to 15% chance of becoming law. He added that McCarthy has previously supported the measure, but his stance on it could change now that he’s speaker. Salisbury also said that “any progress, including procedural progress, is good,” but the “challenges that the legislation faced last Congress, including opposition from Senate Minority Leader Mitch McConnell and certain House Republicans, remain.”

“In our view, the legislation will most likely be voted successfully out of the Senate Banking Committee — which only requires a simple majority — as Democrats hold a one-seat majority on the panel, and some Republican senators, including Sens. Cynthia Lummis, R-Wyo., Kevin Cramer, R-N.D., and Steve Daines, R-Mont., are expected to support the legislation as well,” Salisbury wrote.

“However, once voted out of committee, the legislation will still need a sign off from Senate Minority Leader Mitch McConnell, who has notoriously opposed past iterations of the legislation and prevented its passage.”

McConnell helped sink the banking bill in December, as he described it in a floor speech as “making our financial system more sympathetic to illegal drugs.”

The recent rallies for marijuana stocks have followed news about the SAFE Banking Act getting re-introduced in Congress and a hearing for it being scheduled for 9:45 a.m. Eastern Thursday before the Senate Banking Committee.

Seven groups that lobby for the cannabis industry expressed support for the upcoming hearing in a statement released Wednesday.

“This discussion could not be more timely given the industry is currently in crisis. Small operators are struggling to stay in business and compete with a growing illicit market and Chinese-backed entities that are benefitting from federal inaction on cannabis reform,” the industry groups said.

Jefferies analysts have said the banking bill “has a real chance of passing,” and others have emphasized that the House has approved the measure multiple times.

Marijuana stocks, as tracked by the AdvisorShares Pure US Cannabis ETF MSOS, -3.51%, have gained 8% over the past month, but they’re down 58% over the past 12 months. The S&P 500 SPX, +0.45% is up 1% over the past month and 3% higher over the last 12 months. (Full Story)

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