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One of the most promising yet wildly disappointing sectors overall is the legal cannabis market. Initially, the movement toward full legalization in North America appeared to bode well for companies like Sundial Growers (NASDAQ:SNDL). Unfortunately, a saturation of competition — after all, growing botanicals isn’t rocket science — has hurt the SNDL stock narrative and its ilk.
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But U.S. legalization of marijuana is a matter of when, not if, eventually, as many analysts have pointed out. According to a November 2019 report by the Pew Research Center, two-thirds of Americans support legalization, which is a metric that basically flipped on its head from roughly two decades prior. With such a dramatic turnaround in sentiment, the green light for the green stuff is an inevitability.
Further bolstering the bullish thesis for SNDL stock is that the novel coronavirus pandemic failed to dampen the mood. If anything, the global health crisis represented a pretty darn good reason to light one up, not that I would know anything about that. Perhaps this might be a good time to introduce my friend?
But seriously, according to a report published by the International Journal on Drug Policy, the Covid-19 pandemic limited access to healthcare services. As a result, medical marijuana patients increased their non-cannabis drug and substance intake, most notably alcohol. Being that this was the case, it wouldn’t be too much of a stretch to assume that cannabis consumption increased across the board.
Cynically, the above dynamic is a benefit to SNDL stock in a broader sense. But politically as well, the pandemic hasn’t dented enthusiasm for botanicals. In fact, another Pew report, this one from April 2021, indicates that “Americans overwhelmingly say marijuana should be legal for recreational or medical use.”
With Democrats in control, legalization should be a cakewalk.
SNDL Stock Might Not Get a Legal Tailwind
However, I’ve made many arguments that stakeholders of SNDL stock shouldn’t hold their breath regarding the Biden administration de-scheduling marijuana. Primarily, President Biden is up there in age and he most likely doesn’t want narcotics legalization as part of his legacy.
More recently, I suggested that if you were really gung ho on SNDL stock, you should wait until we get closer to the 2024 presidential election. As the challenger (again), former President Trump has many advantages, such as throwing some nuggets to attract supporters. That could very well be both decriminalization and de-scheduling.
However, with Democrats closer than ever to their green dream, I sense hesitation among the ranks. Honestly, if we really think about this objectively, de-scheduling is a huge deal. Yes, as InvestorPlace contributor Joseph Nograles argued, the “vast majority, roughly 91% of adults, in the United States support loosening cannabis restrictions.”
Naturally, this implies full legalization but here’s the thing: probably a majority of Americans support higher speed limits on our freeways, too, but outside of Texas, you might not enjoy governmental accommodation.
In other words, we the voters are downwind entities. If our collective opinion is wrong, so be it. We don’t lose our right to vote again. However, if a politician gets the blame for unforeseen consequences of controversial legislation, he or she might lose their job.
Because the upwind consequences are so severe, I think we might need to rethink the whole legalization-is-a-given argument. It’s one thing that a majority of the nation supports an initiative. But add risk of reputation or livelihood to the picture and the entire matter becomes much more complicated.
That goes for Democrats and Republicans, which might mean that Trump will stick to his law-and-order image.
Law Enforcement May Have Final Say
A rather scathing report by the Missouri State Medical Association cited evidence that marijuana legalization will cause problems for its state’s law enforcement officers and school administrators. Referencing California’s lax policies toward cannabis, the report mentions that the Golden State has been struggling to contain the black market, despite recreational legalization supposedly disincentivizing such activities.
And that might be a damning piece of evidence for the legalization crowd. Again, some evidence shows that going soft on weed doesn’t solve the criminality aspect. The last thing any politician of any stripe needs right now is more crime in their jurisdiction.
Of course, political speculation is a crapshoot of crapshoots. I could very well be wrong about the implications for SNDL stock. However, what has become clearer is that if you want a smart approach to Sundial, you should conduct your due diligence on the assumption of no legalization. This is a much trickier issue than I had previously thought.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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