This article was originally published on Opto – Invest in the Next Big Idea.
While Trulieve’s share price ultimately came down 1.93% last Monday to CA$46.59 after its initial high, Harvest Health’s share price closed up 11.26% on the day, going on to gain 18.39% through last week and closing at CA$5.15. Looking at the wider sector on our thematic performance screener, the Cannabis theme is up 3.76% over the last week as of 18 May’s close.
Trulieve has expanded its footprint with the deal for Arizona-based Harvest Health, a state where recreational cannabis became legal on 30 November last year.
While a growing number of states, like Arizona, are legalising the drug, we also look at why cannabis could face a tougher time in receiving approval at a federal level.
Trulieve buys Harvest Health in $2.1bn record cannabis acquisition
Trulieve’s record deal for fellow cannabis stock Harvest Health almost doubles the Florida-based firm’s coverage from six to 11 states, and instantly creates a market leadership position in Arizona. The deal represents a clear indication of how much US cannabis firms are willing to pay to gain access to states that have recently legalised marijuana, according to Yahoo Finance’s Zack Guzman, while federal laws still restrict operating across state lines.
Trulieve CEO Kim Rivers told Yahoo Finance that Harvest’s number one position in Arizona made it an obvious cannabis stock to target.
“In this industry, it’s important to not only ensure that you’re in the right markets and that you have the right products at the right value propositions for customers … it’s also important that you’re proving that profitability because of the limitations that we have in this industry due to federal constraints.”
While it remains illegal for cannabis to cross state lines, the deal enables Trulieve to establish distribution channels in key markets, and, importantly for Trulieve shareholders, Rivers is confident that it will create “bottom-line value for shareholders over the long term.” Harvest’s presence in Nevada, Colorado and Utah will also give Trulieve a vital foothold in those states.
Cannabis legal in a third of US states, but federal approval still distant
Some seven states have legalised cannabis since November 2020, which is a rapid rate by anyone’s standards, and demonstrates the strength of feeling for the drug’s legalisation across much of the US. Following New Mexico’s approval last month, it means that just over a third of US states have now officially legalised the recreational use of cannabis.
However, despite the growing number of legal-cannabis states, the previously Republican-controlled Senate often proved a roadblock for changes to policies on a federal level, notes the Independent’s Louise Hall — and this may not change with the new Biden administration. Executive director of the National Organization For the Reform of Marijuana Laws, Erik Altieri, told Forbes that “we continue to see leadership on the issue of ending our nation’s failed and racist prohibition on marijuana from just about everyone except the White House.”
A trio of leading Senate Democrats are working towards the legalisation of cannabis, including majority leader Chuck Schumer. In February, the senators said that “ending the federal marijuana prohibition is necessary to right the wrongs of this failed war [on drugs] and end decades of harm inflicted on communities of colour across the country.” A Gallup poll last November showed that 68% of Americans favoured cannabis legalisation, reports the Independent.
With 60 votes required to pass Senate legislation, and only 50 Democrats in the Senate, Schumer needs every single Democrat as well as some Republicans to vote in favour, report Forbes. The fact he currently has neither means cannabis legalisation at a federal level in the US is unlikely to happen any time soon.
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