US Farm Bill Could Legalize Hemp – Effect on Cannabis Stocks

Cannabis stocks all rallied into the legalization of its recreational use in Canada earlier this year. After the law came into order, there was a massive sell-off of the stocks. This could be interpreted as a classic “buy the rumor sell the news” type of event. Now a new potential catalyst could affect both the cannabis market and cannabis stocks. A new U.S. law removing the ban on industrial hemp can come into effect later this year. The Hill writes;

Senate Majority Leader Mitch McConnell (R-Ky.) pledged that language lifting the federal government’s longstanding ban on industrial hemp will be included in the engrossed version of HR 2: The Agriculture Improvement Act of 2018 (the farm bill)

 The language also for the first time amends the federal Controlled Substances Act of 1970 so that industrial hemp plants containing no more than 0.3 percent THC are no longer classified as a schedule I controlled substance. This change would green light states to regulate the crop’s production and retail sale free from federal interference.

In essence the new law would mean a total federal approval of selling products based on Hemp, which produces one the main ingredients CBD. Furthermore one of the most important effects of the new bill could mean easing of banking restrictions for hemp producers, processors and retailers that sell products with them as it would no longer be federally illegal. In addition, hemp producers would access federal crop insurance and capital markets.

As the US market is by far the world biggest market, a potential passing of the bill would be game changing for the whole sector. Major Cannabis companies such as Tilray (TRLY US) have already stated that they aim to massively move into the U.S market if the bill passes. Bloomberg quoted Tilray CEO;

If Congress passes the farm bill, which would legalize non-intoxicating cannabidiol derived from hemp, Brendan Kennedy said Tuesday on the company’s third-quarter earnings call. He is also closely watching the STATES Act, which would give states the power to legalize marijuana without the threat of federal interference.

“Companies such as ours would deploy massive amounts of capital in one single location or two single locations in one or two states and quickly move that product from state to state,” Kennedy said

We have previously noted various stocks and EFTs to follow in the sector. With the recent general market turmoil, Cannabis stocks have like all other sectors taken big hits. This could potentially mean that the market have not priced in the new law passing. As an investor one should monitor the space potential passage of the new laws could mean further focus and movements in the stocks.