Investors Get No Buzz From Marijuana Legalization

When a Tuesday morning report hit the wire that U.S. Senate Majority Leader Chuck Schumer planned to introduce a bill on Wednesday that decriminalizes marijuana, cannabis stocks posted some solid gains, up as much as 15%. The high didn’t last.

By the closing bell, only two U.S.-traded cannabis-related stocks traded more than 1% higher for the day, although all but one closed up a bit. The big winner was OrganiGram, which closed with a gain of nearly 11% for the day, primarily due to a solid earnings report and an improved outlook announced earlier in the day.

Schumer’s proposed legislation would remove marijuana’s listing as a Schedule I drug under the Controlled Substances Act, the same category as heroin and cocaine, among others. The federal government would regulate and tax the cannabis industry while leaving states in control of how they operate cannabis businesses and regulate adult use of the drug. There would no longer be a federal threat of punishment for possession and use of cannabis products.

If the federal legislation is enacted, marijuana businesses also would gain access to federally regulated banking services that have been withheld due to fears that banks would lose their federal licenses.
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Proponents of decriminalizing marijuana no doubt think that the legislation is long overdue. Medical marijuana use has been legalized in 37 states and recreational marijuana use has been approved in 18 states and the District of Columbia.

Share prices of cannabis-related stocks already may have priced in U.S. legalization. Following the November elections that left Democrats in (fragile) control of the White House and Congress, many people believed it was only a matter of time before marijuana was decriminalized.

Another limiting factor on share prices is the experience of legal sales of recreational marijuana products in states where they are already legal. Regulations and taxes make marijuana more expensive when purchased legally than when purchased from a non-legal source. Business owners have pleaded for more enforcement, but the impact of tougher enforcement has been limited. How Schumer’s proposed legislation deals with this issue could be key.

Here’s a sampling of the difference between share price increases of some marijuana companies at around 10:00 a.m. ET Tuesday and the closing price for the day.

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