Investors are avoiding cannabis

The marijuana industry is in deep financial crisis.

According to AdvisorShares Pure U.S. Cannabis ETF, a popular indicator for the sector, stock prices are down about 45 percent since mid-February. Over the same period, the wider S&P 500 is up about 20 percent.

"It's sadly one of the worst performing asset classes in the United States," said Morgan Paxhia, co-founder of Poseidon Asset Management, a cannabis investment firm.

A big reason behind the financial slump is that Congress and the Biden government have done nothing to ease restrictions on marijuana, despite the Democrats' control of the entire federal government.

The most recent blow: JPMorgan Chase's decision to stop accepting some cannabis deals from broker clients, as Reuters first reported on Tuesday. This follows a similar announcement by Credit Suisse Group.

"The banks see what I do, that there will be no cannabis legalization for the next six to 12 months," said Marc Adesso, a lawyer at Saul Ewing Arnstein & Lehr who works on big deals in the cannabis industry.

All of this is a remarkable U-turn from the start of the year, when optimism skyrocketed in the cannabis industry following the Democrats' victory over the Senate. Investors poured into the industry. Cannabis giants raised billions in capital to fund expansion plans. The share prices rose.

But the Democrats didn't pass a single law in the following 10 months - and the chances that that will change anytime soon are slim.

The industry’s biggest immediate demand is for legislation to be passed that would facilitate cannabis companies’s access to banking services and fundraising.

"The banks are conservative beasts," said Paxhia. "We're not asking for the blue sky here".

The SAFE Banking Act has already passed the House of Representatives twice with large bipartisan majorities. But it wasn't accepted in the Senate. And major Democratic lawmakers - including Senate Majority Leader Chuck Schumer, and New Jersey Senator Cory Booker - have made it clear that they don't believe a banking bill should be passed unless it is tied to broader federal cannabis policy changes .

But a far-reaching draft on cannabis legalization presented by Schumer, Booker and Senator Ron Wyden (D-Ore.) In the summer has not yet been introduced as official law. Even if that changes, the chances of getting all 50 Democrats to the plan - not to mention the 60 Senators it takes to prevent a procrastination - are extremely slim.

"That was so unrealistic," said Adesso. "That wouldn't have gotten through."

The cannabis sales boom that began when Americans crouched to weather the pandemic has also subsided. In California, legal cannabis sales peaked over $ 350 million in April this year, before declining for five straight months and falling below $ 300 million in September, according to cannabis analysis firm BDSA. Similarly, sales in Colorado topped $ 225 million last July, but have since plummeted, with earnings just over $ 190 million in September.

Despite the gloomy market indicators, the long-term outlook for the cannabis industry continues to look positive. According to New Frontier Data, US sales will hit $ 20 billion in 2020 - a jump of nearly 50 percent. Sales are expected to exceed $ 40 billion by 2025, fueled by large new stores slated to go live in New York, New Jersey and Virginia.

Longtime investors like Paxhia aren't exactly panicking.

"I have 99 percent of my net worth in this industry and I'm not worried about where we are today," he said. "Few of us really think about a 20 year horizon".