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Illustration: Sarah Grillo/Axios

The largest cannabis stocks saw their share prices drop significantly on Wednesday, after more states legalized recreational and medical marijuana use and Biden, who has vowed to decriminalize marijuana if elected, moved closer to being declared the winner of the U.S. presidential election.

Driving the news: Arizona, Montana, New Jersey and South Dakota voted to legalize marijuana on Tuesday, joining 11 other states and Washington, D.C.

  • “These state-level victories will mean tens of thousands of fewer arrests and new jobs, much-needed tax revenue and increased public safety,” Aaron Smith, CEO of the National Cannabis Industry Association, said in a press release.
  • “There is still a lot of work to do, but the wind is at our backs.”

By the numbers: Companies such as Canopy Growth, Aurora Cannabis, Tilray, and Cronos all saw declines of at least 8% Wednesday. Marijuana ETFs also tumbled, including...

  • The $600 million ETFMG Alternative Harvest ETF (MJ) by more than 3%.
  • The AdvisorShares Pure Cannabis ETF (YOLO) by 0.65%.
  • The Cannabis ETF (THCX) by 2.8%.
  • The Global X Cannabis ETF (POTX) by 4.2%.

What's happening: While the poor performance of the sector's big names left many scratching their heads, it may be a case of the still-nascent U.S.-based marijuana industry getting a boost.

  • The AdvisorShares Pure U.S. Cannabis ETF (MSOS), which holds only U.S. companies, closed 1% higher, having gained as much as 2% during the trading day.
  • Its shares have risen 28.5% since Sept. 24.

Between the lines: Because cannabis remains illegal on a federal level, the U.S. lacks for large publicly traded companies.

  • Most investors seeking to bet on industry growth have had to invest in proxies like Constellation Brands, which is mainly a purveyor of alcoholic beverages, or companies like Aurora and Tilray that are headquartered in Canada.
  • The Pure U.S. Cannabis ETF includes stocks from less known mid-, small- and micro-cap companies like GreenThumb Industries and Curaleaf Holdings through total return swap contracts.
  • Some holdings focus on areas such as REITs, health care, cannabidiol (CBD), pharmaceutical and hydroponics.

What's next: Legalization advocates had hoped for a Democratic blue wave that would pave the way for nationwide decriminalization or at least the removal of cannabis as a Schedule 1 narcotic.

  • But there may still be a path as many states represented by Republicans have passed popular ballot initiatives legalizing cannabis for recreational use, including South Dakota, where Sen. John Thune is the No. 2 Republican in the chamber.
  • 53% of voters in Thune's state supported recreational cannabis and 69% of the electorate embraced medical marijuana.

Go deeper

Voters approve marijuana legalization in 4 states

An election worker sorts submitted ballots. Photo: Nathan Howard/Getty Images

Voters approved legalizing recreational marijuana use in several states, and Oregon decriminalized the possession of street drugs.

The big picture: New Jersey, Arizona, Montana and South Dakota will join the 11 states and D.C. that have already legalized cannabis for adult recreational use.

Dan Primack, author of Pro Rata
Nov 5, 2020 - Economy & Business

Cannabis company makes first-ever purchase of a beer brewer

Photo illustration: Rafael Henrique/SOPA Images/LightRocket via Getty

Aphria (TSX: APHA), a Canadian cannabis company, has agreed to buy Atlanta-based craft brewer SweetWater Brewing Co. for $300 million. Sellers include TSG Consumer Partners.

Why it's the BFD: This is the first time a marijuana company has bought a brewer, rather than the other way around. It also comes the same week that five more states legalized cannabis in some form, meaning that legalization will now cover around one-third of the U.S. adult population.

Virginia lawmakers vote to legalize marijuana in 2024

Virginia Gov. Ralph Northam. Photo: Alex Edelman/Getty Images

Lawmakers in Virginia on Saturday approved compromise legislation that would legalize marijuana in 2024, putting the state a step closer to becoming the first in the South to end prohibition on the drug, the Richmond Times-Dispatch reports.

Why it matters: The legislation will make Virginia the 16th state to legalize marijuana, per Politico. It would add to a slate of laws that have seen Virginia move in a more progressive direction during the tenure of Gov. Ralph Northam.