US Midterm results positive for cannabis investors

The U.S. election results were positive for the cannabis outlook but it was far from a “Blue Wave.” We pointed out last week that the average change in midterm elections over the past 98 years was a loss of 29 seats for the sitting President. So the loss of approximately 35 House seats is only slightly worse than average and much better than President Obama who lost 63 House seats in his first term midterms and President Clinton who lost 54 seats in his first term midterms. That is why the mainstream media quickly changed from calling it a “Blue Wave” to a “Pink Wave” (women) or a “Rainbow Wave” (diversity). What it did make clear, however, is that the Democrats have a much tougher fight than they anticipated if they are to win the White House in 2020. In addition, the Republicans increased their hold on the Senate. The reason this is important will be evident below. Of course, it may be several weeks before the final standings are in as it seems recounts and run-offs lie ahead.

It is also clear that the Republican party is now more supportive of Trump. According to the President, nine of the eleven candidates that asked for and received his support in the last week before the election won. Some political pundits suggested the Senate results ensure the Republicans will be able to control the Upper House beyond 2020. This has already had an impact as the President seemed emboldened and asked for and received Attorney General Jeff Session’s resignation. Matt Whitaker, named acting A-G is a known Trump supporter. Make no mistake, this was all about Russia and not cannabis but investors benefited anyway. Sessions was staunchly anti-cannabis and the mere fact that he is no longer there is a win. To the extent that Sessions revoking the “Cole Memorandum” triggered the massive cannabis stock selloff last January suggests that reinstating the former policy could have an offsetting positive effect. Also, with a stronger grip on the Senate, Trump’s next appointment for Attorney-General will pass far more easily in the new Senate than the old one.

In fact, the results even suggest President Trump’s re-election in 2020 is not out of the question. In President Obama’s first midterms in 2010, the Democrats lost 63 seats in the House, an all-time record loss that also meant loss of their majority. They also lost six Senate seats that narrowed their majority position from 57 out of 100 to just 51 of 100. They also went from a majority of Governors in 30 states to Governors in only 24 states thus losing ground in the gubernatorial standings. Based on these results, the outlook for Obama’s re-election two years away was bleak. Yet in 2012 the Obama/Biden ticket won 332 of the 538 electoral votes and won the popular vote by 5 million votes.

Nevertheless, we mustn’t overlook the fact that control of the House moved from the Republicans to the Democrats. This is positive for cannabis stocks. There have been 41 pro-cannabis bills introduced in the 115th session of Congress (January 3, 2017 to January 3, 2019). This is as many as in all the sessions from 1999 to 2015. It is far more likely after the election that one or more of these bills will pass through a Democratic House. Also on the plus side, Also Utah and Missouri voters approved medical marijuana use and Michigan approved recreational cannabis while North Dakota did not. Ten states and the District of Columbia now allow recreational marijuana while medical marijuana is allowed in 33 states.

The results were at the lower end of what the Democrats might have accomplished in the election. That the Democrats would make gains in the election was a given. Only twice in 98 years has a President gained House seats in the first term, midterm election. So it is no surprise that the Democrats won seats in the House. The surprise is they didn’t do better. But on top of it all, the Democrats also lost seats in the Senate. From a practical point of view, losing seats in the Senate could really hurt. Two Supreme Court Justices, Ruth Bader Ginsburg (85) and Stephen Breyer (80) are octogenarians. Both are President Clinton liberal appointments. So it is at least conceivable that President Trump will have the ability to make another Supreme Court appointment before the end of his current term and that would likely be the replacement of a Democrat appointee. It is, of course, merely a fluke that Justice Ruth Bader Ginsburg fell in her office in the days after the election and broker three ribs. There could have been a far more serious outcome. It just emphasizes how close the U.S. is to needing to replace another Justice.

Muddying the waters even more are a number of votes heading for a recount of one form or another. In Arizona, Krysten Sinema (D) has now edged ahead by a very small margin in the fight for a Senate seat. In Georgia, Stacey Abrams (D) has not conceded the governor’s race. And then there’s Florida. On election night, Andrew Gillum (D) conceded the race for governor but as more votes have come in, he has un-conceded. Meanwhile, the Senate seat and the position of agricultural commissioner remain unsettled.

And as we said, these election results show it is not out of the question that Trump could win a second term in which case it is almost a statistical certainty that he will appoint another judge to the SCOTUS.

Another cannabis positive from the election is some key names that lost their seats. Most prominent is Pete Sessions, R – TX who has held his seat since 2003 who has been called ‘Washington’s Most Powerful Anti-Pot Official.” As Chairman of the House Rules Committee, he has consistently stymied cannabis legislation and was opposed to allowing states to determine local cannabis legality. Sessions was defeated by Colin Allred, Democrat, who is a civil rights lawyer but perhaps better known as a former defensive linebacker for the Tennessee Titans. Allred for Sessions is a significant win for cannabis. But other improvements were the losses by Mike Devine, D - PA, Doug Ducey, R - AZ, Dean Heller, R – NV, Steve Pearce, R – NM.

There are a few things to watch out for. Newly elected and re-elected senators and representatives don’t take office until January 3, 2019. Until then, people who have been defeated or re-elected can continue to function normally as “lame ducks.” There might be legislation that the “lame ducks” try to push through but if it happens we doubt it will be cannabis related.

So the 2018 midterm election did not prove to be the “event” we were looking for to fuel a rally in the cannabis stocks. Perhaps if Matt Whitaker reinstates the Cole Memorandum or something like it, the election may have triggered such an “event.” As a result, after this Democratic let down, we expect the cannabis stocks will remain dull unless and until an “event” occurs. In such a market, stock selection and timing remain of paramount importance. So stay tuned.