Workers produce medical marijuana at Canopy Growth Corporation's Tweed facility in Smiths Falls, Ont., on Feb. 12, 2018.Sean Kilpatrick/The Canadian Press
Canadian cannabis stock prices slid this week as analysts reiterated doubts that a sweeping U.S. bill on legalization introduced on Thursday would pass the Senate.
Since the market opened on Thursday, the price of Canopy Growth Corp. WEED-T shares has fallen by 18.07 per cent, and Aurora Cannabis Inc. ACB-T stock has dropped 15.81 per cent. The TSX/S&P Composite Index was up by 0.11 per cent over the same period.
The drop follows several days of price growth earlier in the week in anticipation of the bill, which is known as the Cannabis Administration and Opportunity Act. If adopted, it would remove cannabis from the U.S. Controlled Substances Act and lay the groundwork for Canadian cannabis companies to make inroads in American markets. The bill aims to decriminalize pot across the U.S. and allow states to set their own laws governing its distribution.
The Senate has already rejected a slew of previous attempts at introducing a legal and financial framework for cannabis. While experts say this most recent iteration of the bill – a revised version of a draft presented last year – is unlikely to be passed, they largely agree that, as with previous attempts to make cannabis legal, each try moves the needle.
In a note to investors, Cantor Fitzgerald, L.P. equity analyst Pablo Zuanic said the firm is doubtful the bill, proposed by Democratic Senate Majority Leader Chuck Schumer, will get the required 60 votes in the Senate. He joined a number of other analysts in raising doubts over the existence of adequate bipartisan support. Jaret Seiberg, from U.S. investment bank Cowen Inc., called the bill “dead on arrival.”
But Mr. Zuanic wrote that the bill, even if rejected, could lead to a narrower piece of legislation later this year.
The proposed legislation is wide-ranging. In addition to requiring the Department of Justice to de-schedule cannabis as an illegal drug, it would create a framework for regulation that would span the U.S. Food and Drug Administration; the Bureau of Alcohol, Tobacco, Firearms and Explosives; and the Alcohol and Tobacco Tax and Trade Bureau.
One particular sticking point for the bill is its call for cannabis-related criminal convictions to be expunged – historically a hard sell among Republicans.
It’s the first cannabis bill that has brought all those pieces together, said Charlie Bowman, the North Carolina-based acting president and chief executive of Canadian cannabis producer Hexo Corp. HEXO-T. As a result, he said, he is hopeful the legislation will pass.
The bill’s authors, he said, appear to have learned a lesson from the Canadian legalization experience, during which firms raised prodigious amounts of capital to expand rapidly and subsequently needed to downsize to stay afloat. The bill lays out a plan for excise taxes – which are applied at the point of manufacture instead of at retail – that would set the rate for large companies at 25 per cent of product value. (In Canada, the duty is set at a flat $1 fee per gram.) According to Mr. Bowman, this could have a dampening effect on companies’ expansion.
Miguel Martin, the chief executive officer of Aurora Cannabis, said in an e-mail that the bill’s introduction is a step in the right direction toward decriminalization and social-justice reform.
“While it’s not likely to pass in the Senate, we are optimistic that this sets the tone for comprehensive legislation in the future,” he said.
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