Cannabis stocks rally as Democratic control of Senate nears

Shares in cannabis companies showed strong growth last Wednesday as hopes of progressive reform under Joe Biden’s presidency lifted in anticipation of Democratic sweep.

The surge was triggered by news of Raphael Warnock’s projected victory in the first of the two Senate races in Georgia. Mr Warnock is expected to be Georgia’s first black senator, and should his fellow democratic candidate Jon Ossoff also hold onto a narrow lead in the other race, president Joe Biden will be handed control of the Senate.

What does a blue sweep mean for the cannabis industry?

A Democratic victory in the Senate boosts chances of cannabis reform immensely, which has been reflected in the market’s reaction to the news today.
Stocks in companies that produce marijuana for recreational and medical use had already grown towards the end of 2020 due to Joe Biden’s election victory and the success of ballots around cannabis-reform measures in New Jersey, Arizona and South Dakota.

The Democratic-controlled House already voted to decriminalize cannabis at federal level in December; however, the bill was met with a strong pushback from the Republican Senate. This reflected just how tough it would be to pass through contentious measures without control of both the Senate and House for the Democratic party.

Now, as chances of a blue sweep grow, speculation in the markets is shifting from not if but when the question of further reform will be discussed under Biden’s leadership. Currently, cannabis is fully legalized in 15 U.S states and cleared for medical use in a further 16 states. Decriminalization of cannabis at the federal level would therefore expand the market for cannabis producers greatly.

Shares in cannabis-related stocks Tilray Inc, Canopy Growth, and Cronos Group were buoyed by the news, rising 21%, 17% and 20% respectively on Wednesday.

How did the news affect the wider markets?

Big Tech stocks fell on Wednesday as investors became more wary of the prospect of increased taxes and regulation on the tech giants under the Biden administration. Shares in Netflix, Apple and Amazon were each down roughly 3% by the close of day.

Meanwhile, the S&P500 and Dow Jones Industrial Average rose 1% and 1.5% respectively, amid hopes that a Biden sweep will lead to further economic stimulus for sectors under pressure from the coronavirus pandemic.

The market’s reaction has hinted at who investors see as the winners and losers in a blue sweep scenario. However, with Democratic control of the Senate poised to be narrow, the ability for quick reform will still be hampered. To make effective investment decisions, investors should therefore continue to bear this in mind.