Sean Williams

The Motley Fool

Whether you're ready for it or not, it's election season in America. For the next 15 months we'll be hearing political ads and debates, and reading columns concerning which political candidates give our city, county, state, or country the best chance to thrive.

But what's particularly interesting about the 2020 elections is that, for the first time ever, there's likely to be a real focus and debate on cannabis reform.

As you're probably aware, marijuana is classified as a Schedule I drug in the United States. That means it's wholly illegal, prone to abuse, and not considered to have any medical benefits, even though the U.S. Food and Drug Administration approved the very first cannabidiol (CBD)-based oral medicine in June 2018. Yet according to various polls, the American public favors the legalization of recreational cannabis, and overwhelmingly supports patients' access to medical marijuana.

This bifurcation between what the public appears to want in surveys, versus a body of lawmakers that has been unable to advance serious discussion on cannabis reform, is likely to come to head in the 2020 election.

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Feel the (cannabis) Bern?

Whereas President Donald Trump, the expected Republican nominee for a second term, has wavered on his support for legalizing marijuana at the federal level, nearly all Democratic candidates have come out in support of some form of legalization or decriminalization of the drug. But perhaps no candidate has been more vocal about this stance than Sen. Bernie Sanders (I-Vt.).

In 2016, when Sanders ran for the Democratic presidential nomination, ultimately losing out to Hillary Clinton, one of his many campaign promises was to reform America's justice system by legalizing marijuana. This made Sanders the first major presidential candidate to support legalizing cannabis, with many of his fellow Democrats also taking that view ahead of the 2020 election.

But whereas many of Sanders' fellow Democrats have offered their support for legalization or decriminalization without laying out a specific plan on how to get that done, Sanders has proposed a unique means of bringing the green rush to the United States. As reported by Newsweek, Sanders would use a presidential executive order to make it so.

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While speaking with Joe Rogan on the Joe Rogan Experience podcast, Sanders had this to say:

When I ran for president for the Democratic nomination in 2016, I talked about a broken criminal justice system, which ends up having in the United States more people in jail than any other country. And what I call for then, and I call for now, is the legalization of marijuana in America. That [marijuana's Schedule I classification] is insane. Heroin is a killer drug. You can argue the pluses and minuses of marijuana, but marijuana ain't heroin. So we have to end that, and that's what I will do as president of the United States. I believe we can do that through executive order, and I will do that.

Election fever has Canadian pot companies excited

As you can imagine, any possibility of change at the federal level in the U.S. has cannabis companies excited. More specifically, it has established Canadian growers with deep pockets very intrigued. Let's remember that, even though Canada has legalized adult-use weed, legalization in the U.S. would dwarf Canada's annual pot sales, and any other country around the world, for that matter.

This expectation of eventual reform is what enticed Canopy Growth, the largest marijuana stock in the world by market cap, to offer to buy Acreage Holdings for $3.4 billion (when announced) on a contingent-rights basis. Shareholders have already approved the combination. The contingency, however, is that the U.S. federal government has to legalize marijuana. If that happens, in addition to Canopy paying Acreage shareholders $300 million upfront, they'll receive 0.5818 shares of Canopy Growth for each Acreage share they own.

Sure, this deal gives Acreage access to Canopy's leading brands, but it's far more important for Canopy Growth, which would gain access to 20 U.S. states, as well as Acreage's more than seven dozen retail store licenses. Acreage has the infrastructure needed to make Canopy an instant success in a budding U.S. market, and the timing of this announcement (mid-April) suggests that the two parties see legalization occurring at the federal level sooner than later.

Of course, Canopy Growth is far from alone. Around half of Canada's major weed growers have made plans to enter the U.S. hemp and/or cannabidiol (CBD) market in order to build business relationships and get valuable infrastructure in place on U.S. soil before a hopeful change in scheduling at the federal level.

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Hold your horses

While public opinion, and recent investments, would appear to favor the legalization of cannabis happening fairly soon in the U.S., this may not prove to be the case.

For instance, only Sanders has suggested that an executive order to legalize marijuana is on the table. That means such a scenario may only work if Sanders becomes the Democratic nomination, and wins the election. There are no certainties, at the moment, who'll win the Democratic presidential nomination or the 2020 presidency. That makes it very difficult to predict whether or not cannabis has a shot at reform anytime in the near future.

In the meantime, Senate Majority Leader Mitch McConnell (R-Ky.) has made it clear through his actions that cannabis-related legislation isn't going to reach the Senate floor for debate. This suggests that the Senate may have to change hands from a Republican majority to a Democratic majority if marijuana reform is to stand a chance at passing on Capitol Hill.

There's no doubt that cannabis reform has more potential to occur now in the U.S. than at any point over the past couple of decades. But that also doesn't mean it's a guarantee to happen anytime soon. Invest accordingly.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

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