Pubdate: Wed, 21 Oct 2020 Source: Wall Street Journal (US) Copyright: 2020 Dow Jones & Company, Inc. Contact: http://www.wsj.com/ Details: http://www.mapinc.org/media/487 Author: Carol Ryan POT STOCKS STAGE A MUTED ELECTION RALLY A victory for the Democratic Party in next month's presidential election would be a game changer for the cannabis industry. Despite their reputation for overexuberance, pot investors are reacting with level heads. Since mid-August, the 10 largest North American pot stocks by market value are up 20%, according to Viridian Capital Advisors. This is relatively muted compared with the 83% rally seen in the three months before the 2016 election. Americans have been buying a lot of pot during the Covid-19 pandemic, which may also explain why stocks are rising. Sales in seven large states where cannabis is legal, tracked by research company Headset, were up 51% from January through September compared with the same period of 2019. Consumers have had more leisure time at home and federal stimulus money to spend. Alcohol companies have enjoyed similar tailwinds. "Retail sales are much higher than expected, even in mature markets like Colorado," says Karan Wadhera of cannabis venture-capital firm Casa Verde. Still, large U.S. pot stocks have outperformed their better-established Canadian peers since July, hinting that politics also are at play. If the polls are correct and Joe Biden is elected the 46th president of America, U.S. pot growers stand to benefit disproportionately from any changes to cannabis laws. During the recent vice presidential debate, Democratic candidate Kamala Harris said a Biden administration would decriminalize cannabis. That would remove several big headaches for the industry. Institutional investors won't buy shares in a U.S. cannabis grower while the drug remains federally illegal, and a predominantly retail shareholder base creates unhelpful volatility in pot stocks. Crucially, U.S. cannabis companies can't get the regular bank services, such as a mortgage or credit line, that other businesses take for granted. This leaves the industry reliant on dilutive equity raises and expensive debt to fund deals and expansion plans. If President Trump hangs on to the White House, the industry may still benefit. A Democrat-controlled Senate would be likely to pass cannabis bills such as the Safe Banking Act, which would give companies access to mainstream financial services. Considering how wrong the polling data was back in 2016, investors are understandably cautious this time around. They have also learned the hard way not to believe all the hype in the cannabis sector. The North American Marijuana Index dropped around 45% over 2019 as sales and profits came in well below expectations. The pot industry has more riding on this election than most. Whatever the result, it is a good sign that cannabis investors are becoming harder to impress. - --- MAP posted-by: Matt