U.S. marijuana stocks gave up gains on Monday, after a Republican lawmaker unveiled legislation to deschedule cannabis on a federal level and impose lighter taxes but offer less social-equity support.
During a press conference, the lawmaker behind the bill, South Carolina Republican Rep. Nancy Mace, said the bill was set to be filed soon. The bill, the States Reform Act, has been touted as an approach that could win over reluctant GOP lawmakers, as bigger legalization efforts from Democrats have yet to gain momentum.
“This legislation, I believe, has something good for everyone, whether you’re a Democrat or a Republican,” Mace said at the conference.
Mace said her main goal was to secure as much Republican support for the bill as she could. She said the bill would have five Republican original co-sponsors. The bill also has the backing of the conservative advocacy group Americans for Prosperity.
Lower Excise Taxes
The bill would federally decriminalize cannabis. But it would allow states to set their own policies. On a federal level, it would offer release and expungement for people convicted of nonviolent cannabis-related crimes.
The reforms would also institute a 3% federal excise tax on cannabis products. That’s lower than the starting 10% rate — and eventual 25% rate — proposed in draft legislation by Sens. Chuck Schumer, Ron Wyden and Cory Booker earlier this year.
Money brought in from the excise tax in Mace’s bill would fund small businesses, law enforcement, small businesses and veterans’ mental health initiatives. Some would go to states dealing with opioid abuse.
The States Reform Act would regulate cannabis on a federal level in a way similar to alcohol. Growers would be regulated under the U.S. Department of Agriculture. Products would be regulated by the Bureau of Alcohol, Tobacco, Firearms and explosives, as well as the Alcohol and Tobacco Tax and Trade Bureau. The FDA would regulate medical use.
The GOP bill began circulating after a long slide for U.S. marijuana stocks this year, as investors soured on the political prospects for the industry, which has grown in states where cannabis is legal.
The bill from Schumer, Booker and Wyden was largely regarded by investors as unrealistic or political posturing. And other analysts have expressed skepticism about the prospects of Mace’s proposals. Some have pointed to Mace’s freshman status as a lawmaker. Others have said the bill existed more to assess the GOP’s interest.
Others, however, suggested the States Reform Act shored up the prospects of reform for the legal cannabis industry.
“In our view, the benefit of the SRA is not necessarily in any of the particulars of the bill (as encouraging as some elements are), but more as a mitigating factor should the Democrats fail to push their own legislation over the goal line, or lose control of the Senate in next year’s mid-term elections,” Canaccord analyst Matt Bottomley said in a research note.
More broadly, critics have said that high taxes and other regulatory costs have made operating in the U.S.’ legal industry difficult — particularly for smaller businesses. They have also noted that much of the funding in the cannabis industry has gone to companies run by white, better-connected executives, at the expense of businesses run by minorities and in communities hit hardest by the war on drugs.
U.S. Marijuana Stocks Slip
Analysts have said that U.S. producers are on a firmer path to profitability than their Canadian counterparts. But with pot still prohibited on a federal level, some financial firms have cracked down on the trading of U.S. marijuana stocks.
In a recent letter to prime brokerage clients, JPMorgan said that starting on Nov. 8, it would prohibit long buys, short sales and other services for “certain” U.S. marijuana-related businesses’ securities. Existing positions would be grandfathered. Investors can still liquidate transactions.
The bank, in the letter, said it had introduced “a framework that is designed to comply with U.S. money laundering laws and regulations.” The order applies to companies with a “direct ‘nexus'” to weed-related activity, operations in the U.S., and that aren’t listed on NYSE, NASDAQ, TSX or TSXV.
Credit Suisse is among the other firms to halt services related to marijuana stocks.
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