The Motley Fool

Why the Canopy Growth (TSX:WEED)-Acreage Holdings Deal Might Be Further Away Than Expected

Image source: Getty Images.

When news of a deal involving Canopy Growth (TSX:WEED)(NYSE:CGC) and Acreage Holdings was announced, it was met with both excitement as well as confusion. It was exciting because it would mean two large cannabis operators would be joining forces, covering both the Canadian and U.S. markets, effectively creating a powerhouse in North America.

It was confusing because we knew that technically it couldn’t happen, at least not for some time. In the past, cannabis companies in Canada have run into problems for investing in the U.S. cannabis industry, and so it’s likely that this deal would face the same issues. However, the caveat was that it would only be completed once cannabis would be legal federally in the U.S.

No one has a crystal ball to say when cannabis legislation will be passed federally, although it does appear to be on the horizon given how much progress it has been making at the state level and with bills relating to it popping up more frequently.

One bill in particular that caught the attention of many cannabis investors was the Secure and Fair Enforcement (SAFE) Banking Act. The bill would allow cannabis companies to obtain banking services freely without jeopardizing banks and having them run into consequences for providing services to the cannabis industry.

Banking is a big problem for companies, and many have had to hire their own security guards and conduct a lot of business with cash, making it very dangerous to operate. The SAFE Banking Act would address these issues, allowing banks to offer services to the cannabis industry without the fear of legal consequences for doing so.

While some financial institutions have offered their services to cannabis companies, they’ve done so on shaky legal ground, and many banks are not willing to take that risk.

Why does the SAFE Banking Act matter?

For Canopy Growth and Acreage, how this bill does will gauge just how much of an appetite there is in legalizing marijuana, at least for now. And last week, there was finally a hearing in the Senate on this bill. Although it was a good sign that it finally made it to a hearing, it wasn’t very encouraging, as just one of the Republic committee members was at the hearing.

In order for the bill to progress, it’s going to need support from both sides, and there isn’t necessarily a lot of interest from the Republicans at this point. And if there’s little support to simply approve the SAFE Banking Act, there’s little hope that a much more significant change in legalizing marijuana would do any better.

5 TSX Stocks Under $5

Click here to learn more!

Bottom line

With little interest in the SAFE Banking Act, it’s clear that despite growing interest at the state level, federal lawmakers are still nowhere near being on board to help ensure that legislation relating to cannabis passes. And so, as optimistic as Bruce Linton or anyone else may be that something might happen soon, the reality is it could be several years before we see enough traction take place where cannabis is legalized nationwide and the Canopy Growth-Acreage deal is able to become finalized.

5 Canadian Growth Stocks Under $5

We are giving away a FREE copy of our "5 Small-Cap Canadian Growth Stocks Under $5" report. These are 5 Canadian stocks that we think are screaming buys today.

Get Your Free Report Today

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any of the stocks mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.