Cannabis stocks rally after report that DEA will reclassify drug as less dangerous

By Steve Gelsi

AdvisorShares Pure U.S. Cannabis ETF jumps 22%

Cannabis stocks were up sharply on Tuesday on a report by the Associated Press that the U.S. Drug Enforcement Administration is poised to propose moving cannabis to a Schedule III controlled substance.

The Schedule III classification means a drug has a "moderate to low potential for physical and psychological dependence," according to the DEA. Other Schedule III substances include testosterone and ketamine.

For more than 50 years, cannabis has been a Schedule I substance under federal law, in the same category as heroin and fentanyl.

The AdvisorShares Pure U.S Cannabis exchange-traded fund (MSOS) was up 22.5% on Tuesday, while the Amplify Alternative Harvest EFT MJ gained 12.8%.

Among individual cannabis stocks, TerrAscend Corp. (TSNDF) was up 18.4%, Curaleaf Holdings Inc. (CURLF) was up 16.5%, Trulieve Cannabis Corp. (TCNNF) rose 32.8%, Green Thumb Industries Inc. (GTBIF) rose 23.4%, Cresco Labs Inc. (CRLBF) went up 18.8% and Verano Holdings Corp. (VRNOF) increased by 19.8%.

Canopy Growth Corp. (CGC) was rallying by 43% and Tilray Brands Inc. (TLRY) rose 33.3%, while Ayr Wellness Inc. (AYRWF) jumped 22.9% and Cronos Group Inc. (CRON) went up 13.4%.

DEA's largest policy change since 1970

The move by the DEA may still be weeks away and will require a hearing and a public comment period, according to reports.

The rescheduling follows a recommendation last year from the U.S. Department of Health and Human Services to reclassify cannabis as a Schedule III drug.

The DEA's public affairs office referred MarketWatch's request for comment to the U.S. Department of Justice, which did not comment.

Jefferies analyst Owen Bennett said the move would put cannabis in the same category as drugs such as testosterone and codeine.

"This could prove to be a major catalyst for the U.S. cannabis space," Bennett said.

The move would pave the way for increased institutional access to cannabis and could help deliver a "huge boost" to cash flow due to expected removal of the 280E tax law requirement that keeps legal-cannabis companies from writing off standard business expenses, Bennett said.

President Joe Biden mentioned cannabis during his State of the Union speech and Vice President Kamala Harris has also expressed support for cannabis reform.

Citing people familiar with the situation, the Associated Press reported that the DEA's proposal still has to be reviewed by the White House's Office of Management and Budget.

The move would not legalize cannabis for recreational use on the federal level, but it would mark the DEA's largest policy change since the agency was established by President Richard Nixon in 1970.

Industry executives applaud DEA

Verano Chief Executive George Archos said the failed war on drugs has "negatively impacted our society, and particularly communities of color, for far too long."

Emily Paxhia, co-founder of Poseidon Investment Management, said she expects a "surge in liquidity as sidelined capital enters the market, drawn by the potential for legal businesses to thrive" as legal cannabis competes with the larger illicit market.

Brady Cobb, chief executive of Sunburn Cannabis, said the DEA's move would be one of the most historic moments in decades for the cannabis space. "Cannabis has never belonged on Schedule I with drugs like cocaine and heroin," he said.

John Hartmann, chief executive of Ascend Wellness, said the move opens up more opportunities for his company. "This favorable industry development could improve customer and patient access, enhance access to funding, provide broader research avenues and more," he said.

Wendy Bronfein, co-founder of Curio Wellness, said the industry should continue pushing to remove cannabis from federal drug scheduling entirely.

"As long as cannabis is listed as a scheduled substance, there will always be an inherent conflict between federal and state law," Bronfein said. "The way to eliminate stigma and legitimize the legal-cannabis industry is to fully remove cannabis from the Controlled Substances Act."

Also read:

HHS recommends rescheduling cannabis, and stocks in the sector rally

Cannabis stocks extend gains after Biden White House shows support of marijuana reforms

Cannabis stocks rise after President Biden mentions plant in State of the Union speech

Rey Mashayekhi contributed.

-Steve Gelsi

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04-30-24 1510ET

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