On this weekend edition of TDR’s Trade to Black Podcast, TDR Founder Shadd Dales speaks with lead financial writer Benjamin A. Smith (@BenjaminA_Smith) on a variety of topics related to cannabis and the macro market. While cannabis stocks have stayed weak in most market conditions, MSOs are not equipped to counteract further erosion in the broad indices. It will likely take a reignition of momentum in federal regulatory reform to get the sector on the right path.
For the month of September, AdvisorShares Pure US Cannabis ETF (NYSEARCA: MSOS) is down 31.67% as early-stage growth sectors have come under pressure.
As we’ve been espousing continuously for awhile, U.S. cannabis stocks require a federal regulatory catalyst to change a number of structural issues that reside in the industry. Shadd and Ben discuss how the assumed push for SAFE Banking can affect the outlook and price action of MSOS, which is being held back by brokerage custody issues, a poor domestic economy and continuing wholesale price compression. Downstream, once banking reforms have been addressed, the market can look forward to dismantling IRS Code 280e.
Under the federal Controlled Substances Act, cannabis is classified as a Schedule 1 illegal drug with no medical uses, on par with heroin and LSD. As long as cannabis remains a Schedule 1/2 drug, IRS Code 280e will apply. This code restricts businesses that deal with Schedule 1/2 drugs from deducting many business expenses that regular businesses would be eligible to deduct. Therefore, it sharply increases the effective tax rate payable by cannabis-touching businesses, thereby reducing earnings potential.
We also discuss heightened geopolitical tensions which ratcheted up dramatically this week with the sabotage of the Nordstream 1 & 2 pipelines in the Baltic Sea and Russia’s subsequent annexation of part of eastern Ukraine. Irrespective of who was responsible for this industrial sabotage, investors are worried the world is hurtling towards a geopolitical crisis that will be hard to avert.
Click on the embedded link to view the podcast.
To view the previous Trade To Black Podcast, click here.