The delay could make it harder for less ambitious bills to make it to the Senate before November’s midterm elections. A narrower proposal for cannabis banking changes, the SAFE Banking Act, has a better chance of passing, but Sen. Schumer might block it to smooth the course for his more sweeping plan. Financial changes would then have to wait its turn.

There is a growing risk that nothing gets done. “We are on a short timeline,” Colin Anonsen, a senior legislative assistant in Washington told investors on a recent call with Viridian Capital Advisors. “I’m concerned if the House changes hands or the Senate changes hands, that window is going to close.”

If cannabis reform is set back another couple of years, valuations will likely remain weak despite rapid growth in the industry. The

AdvisorShares Pure Cannabis ETF,

which tracks a basket of well-known marijuana stocks, has more than halved over the past 12 months. Even the best U.S. cultivators now appear cheap. Curaleaf, one of the largest cannabis growers that operates in multiple states, almost doubled sales and grew its profit margins in 2021. However, its valuation including debt has fallen to 11 times projected earnings before interest, taxes, depreciation and amortization, from 22 times at last year’s 4/20 celebrations.

Even if banking legislation changes do occur, it won’t solve all of the cannabis industry’s problems. The bill would give pot growers access to normal financial services such as checking accounts by reassuring banks that they won’t be prosecuted for working with a federally illegal industry. But cannabis companies will still pay effective tax rates above 70% and U.S. cultivators won’t automatically be able to list on American stock exchanges, as their Canadian rivals can.

However, it might be easier for institutional investors to own the stocks. Today, it is difficult to get a bank to act as custodian for U.S. cannabis stocks, so institutional ownership can be as low as 1% for even the best growers. Instead, major investors including

BlackRock

and Vanguard get exposure to the industry through proxies such as

Innovative Industrial Properties,

a cannabis-focused real-estate investment trust that has 73% institutional ownership, according to FactSet data. This matters for retail shareholders too: They probably won’t see big gains until institutional buyers can pile in and improve valuations.

New Jersey begins legal sales later this week. Maryland may soon go legal too—possibly lured by the almost $4 billion in tax revenue that states made from recreational cannabis sales in 2021, according to Marijuana Policy Project. Still, until Washington gives the industry more legitimacy, cannabis investors will have little to celebrate.

Write to Carol Ryan at carol.ryan@wsj.com