Pot stocks rise after a key senate hearing on cannabis banking reform

• This morning, a key senate hearing on cannabis banking reform took place in Washington DC.
• Cannabis stocks such as Tilray, Canopy Growth, and Aurora gained after the hearing.
• The opinion of Senate Banking Chairman Mike Crapo will make or break efforts to move the Secure And Fair Enforcement Act (SAFE) forward. It would allow banks and financial institutions to work with cannabis companies legally.
• Read more on Markets Insider.

A key senate hearing on cannabis banking reform Tuesday has sent cannabis stocks such as Tilray, Canopy Growth, and Aurora trading higher.

Shares of the three companies gained as much as 2% percent Tuesday during the hearing, titled "Challenges for Cannabis and Banking: Outside Perspectives." The hearing was held by the Senate Committee on Banking, Housing and Urban Affairs, led by Senate Banking Chairman Mike Crapo, a Republican Senator from Idaho.

Regardless if a state has legalized cannabis or not, banks and financial institutions are prohibited by federal law from working with any cannabis companies, their counsel, employees, or even landlords. This has been a huge problem for the cannabis industry and has left many growers, producers, employees, and dispensaries unbanked.

That means that all company business, from purchasing products to paying taxes, has to be done in cash, which poses issues for cannabis businesses and banks. In March, Rep. Ed Perlmutter, D-Col., and Rep. Denny Heck, D-Wash. introduced the Secure And Fair Enforcement (SAFE ) Banking Act, which would allow banks and financial institutions to work with cannabis companies and their ancillarys without violating federal law. The bill now has 206 supporters in the House and a companion bill in the Senate.

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At the Senate hearing Tuesday, members of the banking and cannabis community testified about the problems they face by not being able to legally provide services.

"What matters most is Senate Banking Chairman Mike Crapo. That he scheduled the hearing would suggest a willingness to let the bill advance," wrote Jaret Seiberg of Cowen in a note Tuesday.

If his comments during the hearing match this intent, that would be a positive, Seiberg wrote, and could mean the SAFE Act could be added to a broader measure that could become law. On the flip side, if Crapo is critical of banks that serve the cannabis industry, it could mean the SAFE Act is dead until the new Congress convenes in January 2021, Seiberg wrote.

On Tuesday, there was no indication that the SAFE Act was in jeopardy from comments that Crapo or other committee members made. In addition, while Democratic members did bring up calls for further social justice or economic inclusion demands, it did not appear that those would derail the SAFE Act, as Seiberg wrote they might.

Democrats have long called for expungement or social justice demands to address how illegal marijuana criminal activity has unfairly impacted minority communities. A number of states that have legalized cannabis for recreational or medical use have included such provisions.

Illinois, the most recent state to pass legalization laws, has also included sweeping criminal justice reform in the bill. Hundreds of thousands - up to 770,000, according to according to ABC News- Illinois residents who have previously been convicted for possessing marijuana under previous laws may be eligible to have their criminal records expunged.

On Friday, the First Step Act freed 3,100 inmates, some of whom were serving time for drug charges. The bipartisan act was signed by President Trump in December and increases sentence reductions for good behavior as well as give judges more leeway in sentencing.

The hearing also comes just hours after House Judiciary Committee Chairman Jerry Nadler and Democratic presidential hopeful Sen. Kamala Harris announced they would introduce a bill to decriminalize marijuana at the federal level, CNBC reported.

The Marijuana Opportunity Reinvestment and Expungement Act, or the MORE Act, would decriminalize marijuana, allow states to write their own legislation, and require pot convictions to be expunged or resentenced. It would also give protections to those who use cannabis products.

Two weeks ago, the House Judiciary Subcommittee on Crime, Terrorism and Homeland Security also held a hearing debating marijuana reform.