The ETFMG Alternative Harvest ETF (NYSEArca: MJ) has been steadily rising ahead of the 2018 Midterm Elections and with voters heading to the polls Tuesday, MJ could light up as part of a post-election rally.
In fact, some analysts are viewing today’s election as the final Jenga piece for marijuana legislation that could topple states into conformity, particularly those that haven’t yet adopted cannabis laws in some form or fashion.
“We believe his year’s midterms will reinforce the notion that cannabis in the U.S. has (passed) the tipping point on its way to eventual full legal status,” said Canaccord analyst Bobby Burleson in a research note.
A rally from MJ following the elections could come from a confluence of events that will benefit investors in the near-term and possibly beyond that.
Stock Market Gains Are 18-for-18
October 2018 has been one to forget for U.S. equities as sell-offs, particularly in the technology sector, fueled declines in the Nasdaq Composite, which fell by 9.2%, making it its second largest decline since it fell 10.8% back in November 2008. Things weren’t much better for the S&P 500, which followed the Nasdaq into correction territory and fell by 7% in October–its worst month since September 2011.
The Dow Jones Industrial Average fell 1,300 points or 5%, which hasn’t happened since January 2016. Investors were rocked by copious amounts of volatility after a decade-long bull run that has seen the growth fueled by FANG (Facebook, Amazon Netflix, Google) stocks dwindle as the technology sector fell into correction territory.
MJ wasn’t completely immune to the volatility in October, but it was able to stave off deep declines like those experienced in the technology sector. However, after all that volatility, there appears to be the proverbial light at the end of the tunnel.
“18 out of 18 times the S&P was higher from the October low close–up just over 10% on average,” said LPL Financial’s Ryan Detrick on CNBC. “So it doesn’t mean you have to gain 10%, but the bottom line is that October 29th low, especially with the strength in the last couple of days really could be a major low and seasonality again, November-December of a midterm year, normally are strong.”
“We still see more positives than negatives for a year-end rally here,” added Detrick.
Four States Weigh In
In total, nine states have legalized recreational marijuana in addition to 30 states that have some form of cannabis-related legislation with regard to medical purposes. On Tuesday, voters can increase that list to four more states with some type of marijuana-related legislation—in particular, Michigan, Missouri, North Dakota, and Utah.
State-by-state proposals:
- Michigan: Persons age 21 and older would be able to use marijuana, licensing laws for growers/retailers, local governments can decide whether to exclude marijuana businesses or restrict their operations, a 10% retail tax would be applied to marijuana purchases.
- Missouri: Qualifying medical conditions for marijuana use, state licensing and regulation for retailers, state constitutional changes that alter voting against marijuana laws that have already passed.
- North Dakota: Recreational legalization of marijuana, age requirements to purchase marijuana (over 21 years of age), expunging of criminal record convictions related to marijuana, and punishments for selling marijuana to individuals under the age of 21.
- Utah: Legalization of medical marijuana, specifications for marijuana use/consumption, and licensing of growers/retailers.
Of course, the more states that successfully push marijuana legislation through, the more MJ benefits.
A More Democratic House of Representatives
Political analysts posit that the House will eventually go to the Democrats, which would offer the least path of resistance for further marijuana-related legislation. In particular, it could mean a clearer path for the SAFE Act and STATES Act.
The SAFE Act would disallow the federal government from punishing banks from offering services to marijuana-related businesses where it is legal, while the STATES Act would effectively eliminate federal involvement altogether in any of the states’ marijuana laws. Since the latter is more all-encompassing, it would likely come under the most scrutiny.
Even if the Democrats do take control of the House and subsequently, ownership of the marijuana proposals, the political mudslinging from the Republicans towards those “weed-loving Democrats” could ensue, possibly causing further delays in legislation passing. Furthermore, a divided Congress would metaphorically cause gridlock that could rival any California interstate at 5:00 p.m. PT.
“The Republicans will want something in return to get it through,” said Curaleaf Executive Chairman Boris Jordan. “And you know the minute anyone wants something in return, things take a lot longer.”
Jeff Sessions Resignation
Attorney General Jeff Sessions has been an ardent opponent of marijuana legislation, going as far as calling cannabis a “very real danger” and that individuals of the highest ethics “don’t smoke marijuana.” Ever since Sessions recused himself from the investigation of possible collusion between Russia and U.S. President Donald Trump’s 2016 campaign, he’s caught the ire of the president.
As such, the political scuttlebutt is that Sessions will probably step down as early as the beginning of next year.
“Jeff probably will step down,” Senator Lindsey Graham told conservative talk-radio host Hugh Hewitt.
Supporters of marijuana legislation could rejoice since Sessions’ resignation will mean one less obstacle to contend with. Even if Sessions doesn’t resign, President Trump could issue an “Apprentice”-like firing of the Attorney General, which could take place before the end of this year.
“Allies of Sessions and some in the Justice Department believe the attorney general could be fired in humiliating fashion in the days immediately following Tuesday’s elections,” noted a Washington Post report. “The White House has already begun considering replacements, while Trump aides and confidants have cautioned the president he would face a backlash if he fired either of the top two Justice officials, particularly before the midterms.”
A rally in MJ won’t necessarily need all of these proverbial dominoes to fall, but any one of these factors falling in its favor could see enthused investors piling into the only marijuana-related ETF. As of 12:30 p.m. ET, MJ is up 4.43% and up 15.3% the last five days.
Related: Marijuana ETF Jumps After Canopy Growth Buys U.S. Hemp Researcher
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