Investing in cannabis this year might be worth "dead money" to investors as the likelihood of any U.S. federal legalization efforts appears to wane, according to one analyst.

Cantor Fitzgerald Analyst Pablo Zuanic writes in a report to clients on Monday that he believes that a broad-based sector decline seen across the cannabis space is likely due to stocks pricing in that "nothing happens in the U.S. at the federal level regarding marijuana" in 2022.

Any meaningful cannabis reform opportunities - such as allowing federally-regulated banks to conduct business with pot companies under the SAFE Banking Act - is "wishful thinking" as U.S. policymakers have other legislative priorities that could see legalizing marijuana fall by the wayside as they enter an election year, Zuanic said.

"With U.S. cannabis stocks (including indexes, ETFs) now trading below pre-Nov. 2020 election levels, we believe the scenario that nothing happens in the U.S. at the federal level regarding marijuana reform is priced in," Zuanic said. "That said, even though we are buyers here, we fear a ‘dead-money’ scenario for US MSO stocks is likely in 2022.”

The bearish view will likely continue to weigh on cannabis stocks which have already begun the year solidly in negative territory. According to Viridian Capital Advisors, large Canadian cannabis companies are down more than 15 per cent so far this year while their U.S. counterparts have fallen by about 11 per cent.

Zuanic doubts that U.S. politicians can come up with a compromise bill that would enact enough legislative reform that would boost the cannabis space this year, but points out that decriminalizing marijuana at the federal level and expunging marijuana-related criminal convictions for non-violent offenses are still possibilities.

But the absence of any significant drivers will see the larger U.S. cannabis multi-state operators continue to get bigger and consolidate within the industry, "making it nearly impossible for newcomers to start from scratch and become much bigger than the Canadian [producers] in sales and market cap."

Keeping things status quo will see U.S. pot companies continue to operate as "islands" given current state laws without any interstate trade, which Zuanic notes is a "perfect scenario" for those firms.

Zuanic advises investors that valuations for cannabis companies remain attractive and that it might be a good idea to "selectively" start building positions now even if no meaningful growth should happen for those stocks this year.

He points out that there's "little reason" to own Canadian cannabis stocks right now although he flagged Auxly Cannabis Co., Organigram Holdings Inc., and Village Farms International Inc. as potential "value" opportunities for investors.

Meanwhile, it's unclear if companies like Tilray Inc. and Aurora Cannabis Inc. that are early movers globally in places like Europe and Israel can post meaningful growth there given the small size of those markets, Zuanic adds.