• Ted Ohashi

Midterm elections outcome important for cannabis investors

On Tuesday, November 6, 2018 the U.S. midterm elections will be held. For a variety of reasons, these midterms are generating more heat than light. For cannabis advocates, however, the outcome is important. If the Democrats can take back control of the Senate or House of Representatives it is likely that relaxing the federal position on cannabis will be a priority.

For this reason, we felt a review of the basics of the election would be worthwhile.

Let’s deal first with the Senate or Upper House. The Senate is considered the more important and prestigious body hence the term Upper House. Its standing is based on the fact that there are fewer senators, they represent an entire state and hold office for six years. There are 100 senators (two per state regardless of the size of the state) elected for six year terms. The Vice President of the United States is the President of the Senate. This is important because when the Senate vote is tied, the President of the Senate casts a 101st vote obviously in favor of the President.

A main function of the Senate is “advice and consent,” that is, they have oversight of the President. They must be consulted on and approve treaties and appointments made by the President. This includes approval of Supreme Court appointments as we all learned recently.

At the present time, Republicans hold 51 seats, Democrats hold 47 and there are two Independents that normally vote with the Democrats. As a result, the Democrats could theoretically take back the Senate with a gain of only two seats held by Republicans. Here are the issues:

  1. It turns out that 24 Democratic senators are up for re-election as well as both the independents while only 9 Republicans are up for re-election.

  2. While the Democrats only need to swing two seats, it is assumed they won’t lose any. Ten Democrats are running in states President Trump won in 2016 compared with only one Republican running in a Clinton state.

As a result, it will be very difficult for the Democrats to take back the Senate unless there is a sizeable “Blue Wave” backlash against President Trump.

Let’s next consider the House of Representatives also known as the “Lower Chamber.” The main duty of the House is to prepare bills and pass laws. There are 435 House seats that are distributed proportionately according to population around the United States.

At the present time, the Republicans hold 235 seats, the Democrats 193 and there are 7 vacancies to be filled. So the Democrats need to pick up 23 Republican seats to gain a majority in the House. This is considered a much easier task because historically, the U.S. midterms have seen a voter backlash against the sitting President. From 1918 to 2016, the sitting President’s party lost an average of 29 seats. Only two sitting Presidents have ever gained seats in the midterms.

So the Democrats only need an average performance to regain the House. The only thing favoring the Republicans is momentum. Under President Obama, the Democrats declined in from 59% of state legislatures to 31% and 29 Governor’s offices to 16. But it seems likely that the Democrats will take back the House of Representatives.

If the Democrats take back the House, it will be good for cannabis stocks. If they win the Senate, it will be even better. Even if they win the House but not the Senate, it will still be positive. There are enough Republicans in the Senate that will likely support new cannabis legislation. In the unlikely event that President Trump is able to pull off one of his patented surprises and retain control of both Chambers, the initial cannabis stock market response might be negative but then will swing positive. We believe Trump will follow through and legalize medical marijuana in the U.S. and allow the states to make their own determination.

In the meantime, individual states continue to express their opinions at the ballot box. Utah and Missouri will be voting to approve medical use while Michigan and North Dakota are voting on recreational use.

It seems the outcome of the U.S. midterms can range anywhere from slightly positive to extremely positive with the likelihood being it will be a favorable outcome for cannabis investors.

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