By Ciara Linnane, MarketWatch
Cannabis stocks were mostly lower on Tuesday, as the broader markets faltered and investors awaited the next key catalysts for the sector.
The Dow Jones Industrial Average and the S&P 500 fell after Federal Reserve Chairman Jerome Powell said he was still monitoring the economy for signs of weakness and would seek to avoid a knee-jerk reaction in terms of cutting benchmark interest rates. Stock market investors are also looking ahead to this weekend’s expected meeting between President Donald Trump and Chinese leader Xi Jinping amid growing hopes for cease-fire in the U.S.-China trade war.
In cannabis-related news, the number of banks and credit unions doing business in the cannabis sector has increased sharply in 2019 from 2018, according to advocacy site Marijuana Moment. The site said there were 493 banks and 140 credit unions active in the sector at the end of March, up from 438 banks and 113 credit unions in the same time a year ago.
The data comes from the Treasury Department’s Financial Crimes Enforcement Network, which is tasked with tracking financial services for the cannabis industry by analyzing suspicious activity reports, regular filings made by financial institutions that work in the sector.
For more on this topic, read: Push for legislation allowing banks to serve the cannabis business is gaining momentum
The spike in activity comes amid a broad push for legislation that would protect banks and credit unions from federal enforcement action that could be brought because cannabis is still illegal at the federal level. Two bipartisan bills are currently being promoted; the Secure and Fair Enforcement (SAFE) Banking Act, and the broader Strengthening the Tenth Amendment Through Entrusting States (STATES) Act.
Last week, lawmakers approved a spending bill that included a rider preventing the Justice Department from using federal funds to interfere with the cannabis business in states that have legalized. That bill has yet to be approved by the Senate, but was an important move forward for the industry, according to Korey Bauer, portfolio manager of the Cannabis Growth mutual fund /zigman2/quotes/208282024/realtime CANNX -2.35% recently launched by Foothill Capital Management.
If the bill were approved and were interpreted as offering real protection for the sector, it would likely spark a wave of investment and M&A activity from Canadian and U.S. companies, he said. For the biggest company in the sector, Canopy Growth Corp., it might provide the trigger for it to acquire Acreage Holdings Inc., the multistate operator that Canopy has an option to buy once U.S. laws are eased, he said.
Canopy shares /zigman2/quotes/200603886/composite CGC +3.61% /zigman2/quotes/202205609/delayed CA:WEED +4.49% were down 1.5%, while Acreage was off 10.5% after filing a shelf registration with the Securities and Exchange Commission to offer up to $800 million in debt securities and subordinate voting shares.
Hexo Corp. shares /zigman2/quotes/206508254/composite HEXO +2.01% fell 1.7%, after Oppenheimer downgraded the stock of the Quebec-based company to perform from outperform and said it sees greater gross margin pressure than expected when it first initiated coverage of the stock in February.
“With our updated forecasts and incorporating Newstrike, we now view shares as more fairly valued,” analyst Rupesh Parikh wrote in a note to clients.
Hexo acquired Newstrike Brands in March in an all-stock deal valued at about C$263 million ($197 million). The analyst noted the stock’s 63% year-to-date gain, which compares with an 18% rise in the S&P 500 and is well ahead of some of the company’s peers.