The House of Representatives voted to decriminalize marijuana on Friday. Cannabis stocks wavered.
The House bill, called the Marijuana Opportunity Reinvestment and Expungement Act, or MORE Act, would remove marijuana from the list of scheduled substances and establish a process to expunge prior cannabis convictions. It also will impose a federal tax on marijuana products—a 5% excise tax for the first two years, increasing by 1% incrementally each year in the next three years.
The House voted 220-204 to pass the bill on Friday, mainly along party lines. Three Republicans sided with the Democrats in favor of the measure, while two Democrats voted against it.
The measure now heads to the Senate for consideration, where it faces an uncertain fate. In 2020, a similar bill passed the House but stalled in the upper chamber after failing to garner sufficient support.
“There is much more work to be done before any bill reaches the president’s desk, but we are approaching the end of the cannabis prohibition era,” said U.S. Cannabis Council CEO Steven Hawkins.
Pot stocks waffled on Friday after the vote. Aurora Cannabis (ticker: ACB) was down 0.3%, Curaleaf (CURA) was losing 0.9%, and Canopy Growth ( CGC) was down 0.7%. Tilray Brands (TLRY ) stock was down 2.3%. Cronos Group (CRON) was up 0.5%, while Sundial Growers ( SNDL ) gained 2.5%.
Thirty-six states and the District of Columbia have legalized medical marijuana over the last few years, and 19 states plus D.C. have decriminalized recreational marijuana use for adults, said House Judiciary Committee Chairman Jerrold Nadler, one of the bill’s sponsors.
“If states are the laboratories of democracy, it is long past time for the federal get to recognize that this experiment in legalization has been a resounding success,” he said at Wednesday’s committee hearing.
Federal legalization could have major ramifications for cannabis companies, which would no longer be subject to a section of the U.S. internal revenue code that prohibits taxpayers from deducting business expenses associated with controlled substances, wrote Pedro Palandrani, director of research at Global X ETFs, in an emailed statement. Palandrani oversees the firm’s cannabis ETF ( POTX ), which was down 0.4%.
Legalization also could unlock access to basic financing options, like loans and capital raising on U.S. exchanges, that were previously inaccessible to cannabis companies, he added.
“Furthermore, the possible establishment of cannabis as a commodity with futures contracts and more relaxed regulations regarding land use for cannabis cultivation could also assist developing supply chain dynamics,” Palandrani wrote.
If it passed, states could still choose to not allow cannabis sales.
“Even in the unlikely scenario of it passing the Senate, we believe the operating environment will likely remain the same near-term as questions around regulations & interstate commerce were finalized,” wrote Alliance Global Partners analyst Aaron Grey.
Grey joined a host of other analysts in expressing skepticism about the bill’s prospects in the Senate. For one, it is a more progressive bill, and could struggle to garner support from moderate Democrats and most Republicans, thus falling short of the 60 votes needed to pass the legislation.
Secondly, Senate Majority Leader Chuck Schumer is planning on introducing his own federal cannabis bill, the Cannabis Administration and Opportunity Act, later this month. Grey believes it more likely that Schumer would put his weight behind his own bill.
Analysts are more optimistic that the Secure and Fair Enforcement Banking Act, or SAFE Act, passes later this year. The SAFE Act would prohibit federal banking regulators from penalizing banks that work with cannabis businesses legalized by states. The House passed the measure in February.
But the SAFE Act would have a limited positive impact on cannabis operators, analysts say. Weed would remain illegal at a federal level, creating an obstacle for Canadian companies like Tilray to move into the U.S.
