Pot Stocks Blast Off

Cannabis Stocks Stage a Comeback: Rescheduling and Safe Banking Act Fuel Gains

Cannabis stocks are back in the game following a few promising developments in the federal reclassification of marijuana. Recent news of potential rescheduling and the pending Safe Banking Act has reignited investor optimism in the space.

As a result, shares of prominent Chicago-based companies, Verano Holdings, Green Thumb Industries, and Cresco Labs, surged by 20%, 18%, and 13%, respectively.

This rally comes in response to a crucial recommendation from a high-ranking official at the Department of Health & Human Services (HHS) on August 29th. In her letter to the Drug Enforcement Agency (DEA), HHS Assistant Secretary for Health Rachel Levine proposed reclassifying marijuana as a Schedule III drug under the Controlled Substances Act.

A Schedule III substance is a massive jump from Schedule I’s and would put cannabis on the same level as ketamine, testosterone, and Tylenol with less than 90 milligrams of codeine. While many believe cannabis shouldn’t be scheduled at all, dropping to Schedule III would open up many opportunities compared to the virtually zero opportunities at its current Schedule I status.

That said, it’s a long-overdue change. George Archos, CEO of Verano Holdings, said what we were all thinking: “It’s about damn time.”

Archos went on to highlight the need to end the outdated classification of cannabis as a Schedule I substance, citing its harmful impact on ordinary people and the industry’s significant economic contribution. Cannabis is set to be a $100 Billion industry this year, which is 12% more than in 2022.

While HHS approval is the first step in rescheduling, the DEA must also be on board. As of right now, authorization is still pending. While the HHS approval is crucial, the DEA will be the decision maker. Regardless, the HHS move may entice some investors to reconsider cannabis stocks, offering a confidence boost for investors who may be hesitant to enter the market as things currently stand.

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Over the last year or so, cannabis stocks have been on a massive downward trend as hopes for legalization and banking reform in Congress fell apart. However, President Biden’s directive last fall, instructing HHS and the Department of Justice to explore marijuana rescheduling, had a lot of people feeling hopeful.

A while back, investors closely followed the SAFE Banking legislation, which would allow cannabis companies to access banking services. However, the potential financial impact of rescheduling is now taking center stage, as it would allow cannabis companies to claim standard business deductions, significantly improving their economic outlook.

Andrew Partheniou, a cannabis industry analyst at Stifel, estimates that rescheduling cannabis could nearly double Cresco’s operating cash flow to $128 million next year and provide Green Thumb Industries with a 40% boost to $257 million.

Smaller, independent cannabis shop owners and new industry entrants, including new marijuana dispensary license winners across the country, would benefit from easier access to capital.

It sounds great— in theory.

Despite these positive developments, DEA approval is far from guaranteed. Historically, the DEA has been pretty resistant to drug liberalization efforts, making the jump to Schedule III risky to bet the farm on.

All we can do for now is wait. The cannabis industry is still up in the air, with investors cautiously optimistic about the potential shift in federal classifications. Both the HHS and DEA have yet to comment on these recent developments, so now, we wait.

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