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David George-Cosh

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Some analysts are taking a skeptical eye to the draft U.S. bill aimed at legalizing cannabis that lit up stock prices Monday.

On Friday, Marijuana Moment reported that Nancy Mace, a rookie Republican congresswoman from South Carolina, is behind the States Reform Act -- a draft piece of legislation that is being discussed by some stakeholders before being introduced in the House of Representatives.

Along with federally descheduling cannabis, the draft legislation would create a 3.75 per cent excise tax on all cannabis sales, assign the Alcohol and Tobacco Tax and Trade Bureau to regulate cannabis in the U.S., and allow states to manage whether they would allow cannabis sales or not.

The report caused a broad-based rally in U.S. and Canadian cannabis stocks, despite the bill not being formally introduced in Congress. The AdvisorShares Pure US Cannabis ETF, which includes a basket of U.S. cannabis companies, was up more than 11 per cent Monday; while the Horizons Marijuana Life Sciences Index ETF, which mostly holds large Canadian cannabis operators, traded almost 10 per cent higher during Monday’s session. 

However, Stifel Analyst Andrew Carter said the draft bill has "limited near-term prospects" and expects already-introduced legislation that would allow federally-regulated banks to engage with cannabis companies to be approved in the current Congressional session.

As well, Cowen & Co. Analyst Jaret Seiberg wrote in a report Monday that Mace's draft bill is not "materially changing prospects for Congress to legalize cannabis" because there remains a lack of Republican Senate votes available to pass any cannabis bill, especially one that doesn't include any social justice measures.

Cantor Fitzgerald Analyst Pablo Zuanic was more optimistic. He said in a note released on Friday that Mace's draft bill "significantly increases the probability of federal-level [marijuana] reform this term."

"Given the context, we see room for Democrats to compromise (as long as a final bill is part of the social equity provisions they have called for) and pass [marijuana] reform this Congressional term, as they have promised," he said.

"Yes, a lot has to happen for this to be the real deal, but it makes sense to be constructive."