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How Legalizing Cannabis Could Ease Government Shortfalls Once Coronavirus Pandemic Is Over

Stock from some of the major cannabis companies have been underperforming amid the coronavirus pandemic, following general market trends.

Yet players like Tilray (NASDAQ: TLRY), which was up 24.5% midday Friday, are showing surprising gains. Aurora (NYSE: ACB) shares were up 13.81%, Canopy Growth (NYSE: CGC) was up 0.92%; and Cronos Group (NASDAQ: CGC) was up 1.72% at the time of publication.

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In recent days, cannabis has been labeled an “essential” product by states like Michigan and California, both of which issued orders to keep the flow of product available to patients despite  quarantines.

Demand has also been on the rise, following efforts to stock up before many consumers started practicing social distancing.

Yet these facts fail to account for Thursday's significant raise.

DataTrek’s Cannabis Report

A possible explanation could be attributed to a report issued by DataTrek Research's Jessica Rabe.

In the report, the analyst said cannabis legalization could help cover a significant portion of the revenue shortfalls that will be created by pandemic subsidies.

“Unlike the federal government, states can’t print unlimited amounts of money,” Rabe said.

It’s logical to expect that after the pandemic, state and local governments will face massive shortages in tax revenue brought by decreased commercial activity and a rise in unemployment.

For Rabe, the best solution for states is to legalize and tax cannabis sales in order to create a new stream of strong, reliable revenue.

Eleven states have legalized cannabis for adult use.

Colorado, which has less than 6 million inhabitants, managed to raise more than $300 million last year in marijuana taxes and revenue from licenses and fees.

Colorado’s success story could be the perfect inspiration for distressed states like New York, where annual fiscal revenue is expected to fall $4 to$7 billion lower than the projected $87.9 billion due to COVID-19.

In 2018, the previous state comptroller estimated that legalizing and taxing marijuana sales could bring the state as much as $1.3 billion in annual tax revenue. The sum could cover up to one quarter of the anticipated revenue shortages.

Ilustration by Ilona Szentivanyi. 

Latest Ratings for TLRY

Mar 2020

Cantor Fitzgerald

Maintains

Neutral

Mar 2020

Eight Capital

Downgrades

Buy

Neutral

Mar 2020

Cantor Fitzgerald

Maintains

Neutral

View More Analyst Ratings for TLRY
View the Latest Analyst Ratings

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