An ambitious and long-awaited cannabis bill from Senate Majority Leader Chuck Schumer is unlikely to pass and will not likely stoke interest in U.S. cannabis stocks, analysts say.
While the formal introduction of the Cannabis Administration and Opportunity Act (CAOA) this week has drawn some praise, it landed with a thud on Wall Street.
The AdvisorShares Pure US Cannabis ETF
MSOS,
fell about 2% on Thursday, the day Schumer unveiled the bill. It’s down 53.2% in 2022, compared to a drop of about 24% by the Nasdaq. The index was up 0.5% in early trades on Friday.
“We continue to outline a negative bias to public cannabis equities,” Stifel analyst W. Andrew Carter said Friday in a research note.
He reiterated a buy rating on WM Technology
MAPS,
and hold ratings on GrowGeneration Corp.
GRWG,
Hydrofarm Holdings
HYFM,
and Scotts Miracle-Gro
SMG,
as beneficiaries of the current environment.
“We believe this legislation has no prospects of success with modest reforms still possible during this Congress, but extremely unlikely,” Carter said. “We
believe many of the initiatives included here not only [impede] Republican support, but the aggressiveness hampers bipartisan attention for effective evaluation potentially impacting the prospects for more modest reforms.”
Jefferies analyst Owen Bennett said the CAOA reflects growing momentum behind cannabis reform and its introduction now should give Congress more time to switch to a more “passable” measure by the end of the year.
Instead of the wide-ranging CAOA, pundits see better prospects for the SAFE Banking measure to help open up financial services to cannabis companies as a narrower proposal that’s already passed the House of Representatives seven times in various forms.
“With the CAOA now introduced, the Senate can move onto bills such as the SAFE, which have bipartisan support and a better chance of passing, in our view,” said Aaron Grey, an analyst at Alliance Global Partners.
On July 14, the House passed the National Defense Authorization Act with the SAFE Banking measure attached to it. A Senate version of the bill would only need 50 votes as opposed to the 60 required for a standalone measure, Grey said.
Meanwhile, industry players and special interest groups mostly welcomed the CAOA.
Vince Ning, CEO and co-founder of California-based cannabis wholesaler Nabis LLC, said industry players “are always excited to see federal legislation to legalize cannabis move forward.”
He described Schumer’s CAOA as the most comprehensive piece of legislation that has been filed.
“Even if parts of the CAOA do not pass, we know this will at least bring important pieces of the legislation to light again, such as wider banking access and support for financial services,” Ning said. “The industry has been starved for cheaper and more conventional sources of capital, particularly for small businesses in a bear market economy both in cannabis and globally. “
Voicing criticism of the measure, Ken Sabet, co-founder and president of Smart Approaches to Marijuana, said the CAOA “marches forward on unchecked marijuana legalization, despite the challenges plaguing states with legal weed.” He said the measure also ignores potential harm from high-potency marijuana now available.
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