The head of Canopy Growth Corp. has high hopes for the U.S. Senate and potential cannabis legislation after Tuesday’s midterm elections.
“While the overall results of last night are not yet fully clear, what is abundantly clear is that Americans continue to demand access to legalized cannabis,” David Klein said on a Wednesday call with analysts.
“I hope the results of these midterms will further push the Senate to act swiftly on cannabis reform during the lame-duck period.”
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Klein’s remarks came after the Democrats experienced a stronger-than-expected result Tuesday, managing to stave off big losses in the U.S. House of Representatives and win several key governors’ races.
However, several close races made it unclear by early Wednesday afternoon whether Democrats or Republicans had control of the House or Senate.
Cowen Washington Research Group analyst Jaret Seiberg considered the midterms to be a “significant underperformance” from the Republicans, but said the party is likely to win the House, though by a small margin.
He felt the Democrats were likely to get to 50 seats in the Senate but warned control may come down to a Dec. 6 run-off in Georgia.
“Democratic control of the Senate is key to cannabis legislation next year,” he wrote in a note to analysts.
“A GOP Senate with even only 51 votes means that Mitch McConnell becomes majority leader. We do not believe that he would advance major cannabis bills.”
The midterms also included several votes on the use of cannabis.
Arkansas, North Dakota and South Dakota all voted against adult-use legalization of cannabis, but it passed in Maryland and Missouri, said Bill Kirk.
The MKM Partners analyst still considered a vote on decriminalizing some psychedelics in Colorado too close to call and was awaiting results from several races involving governors with strong cannabis opinions.
“For the cannabis sector, the election dust has yet to settle, but is likely positive,” he said in a note to investors.
Canopy and other Canadian cannabis companies predicting the U.S. will deliver big pot profits have long been awaiting the midterms because they could be a bellwether for how serious the country is about federally legalizing cannabis.
Earlier this year, President Joe Biden said he would pardon people convicted under federal law of possessing cannabis and signalled he’s willing to revisit whether the drug should remain a controlled substance.
In anticipation of these moves, Canopy announced last month that it will create a new U.S.-domiciled company to hold and help it exercise its rights over U.S. cannabis companies Acreage, Wanna, Jetty and TerrAscend Corp.
Canopy is dual-listed on both the Toronto Stock Exchange and Nasdaq Composite.
While Klein said the TMX Group, which runs the TSX, has approved of the moves, Nasdaq has raised objections to the company consolidating its U.S. financial results.
“It is not the structure or the strategy or the plan that they have really objected to at this point,” said Judy Hong, Canopy’s chief financial officer, on the same call as Klein.
She pointed out that the Nasdaq is not a regulator, so Canopy doesn’t require its approval for the transaction to go through.
However, if it continues to object, Hong said it will be possible for Canopy to discuss accepting a heightened level of exposure with the Nasdaq or even appealing a delisting if it gets to that point.
But Hong and Klein seemed confident things will move in Canopy’s favour.
“I remain optimistic that we can get an answer that everyone can be comfortable with,” said Klein.
“We just have to go through the process and unfortunately or fortunately, we are innovators in this space so we have to through some messiness.”
His remarks came as Canopy reported a loss in its second quarter as its revenue fell compared with a year ago.
Its net loss amounted to $231.9 million or 47 cents per diluted share for the quarter ended Sept. 30, compared with a net loss of $16.3 million or three cents per share a year ago.
The bigger loss was primarily due to non-cash fair value changes and an increase in asset impairment and restructuring costs, partially offset by improved margins.
Net revenue for the three-month period amounted to $117.9 million, down from $131.4 million in the same quarter last year.
Canopy says the drop in revenue was due to increased competition in the Canadian adult-use cannabis market, the sale of C3 Cannabinoid Compound Company GmbH and softer performance from This Works, offset by growth at BioSteel.
Labour strikes in B.C. and Quebec and cyber attacks on Ontario’s cannabis distributor had a $2-million effect on the company’s earnings too, Hong said.