Cannabis stocks have retreated from recent highs in the rally sparked by news that the government may reschedule marijuana under the Controlled Substances Act.
Retraces are perfectly normal after big moves. Many traders typically expect a 33% giveback.
The key question is whether the pullback is buyable. The answer is yes, because several potential catalysts lie ahead. Here are two important ones that may play out soon.
[text_ad]
2 Pending Catalysts for Cannabis Stocks
Progress in Washington on Rescheduling Is Likely by Year’s End
The Congressional Research Service (CRS) said in a recent report the Drug Enforcement Administration (DEA) will likely go along with a Department of Health and Human Services (HHS) recommendation to reschedule cannabis under the Controlled Substances Act.
HHS has recommended cannabis move to Schedule III from Schedule I. The move would help cannabis companies by letting them deduct expenses against income in federal tax returns. Legal experts think the DEA may issue a proposed rule on rescheduling by the end of the year. History shows the DEA typically goes along with HHS recommendations. The DEA has issued recommendations as short as sixty days after an HHS recommendation. That would put DEA action this time around at the end of October.
A favorable DEA recommendation would not be the end of the matter. The Department of Justice would make a final ruling. Legal experts predict that could happen by the middle of 2024 (another catalyst).
The Full Senate May Vote on SAFER Banking for Cannabis Companies
The Senate Banking Committee has approved the Secure and Fair Enforcement Regulation (SAFER) act, which would permit a lot more banks to serve cannabis companies. This would help by allowing dispensaries to use credit cards, and by giving cannabis companies wider access to cheaper financing. Cannabis law experts in Washington, D.C. expect the full Senate could vote on the bill soon. It is likely to pass.
This would be another big catalyst, but not as big as progress on rescheduling. The reason is that prospects for SAFER banking in the House of Representatives do not look entirely promising given the leadership turmoil there. Rep. Kevin McCarthy (R-CA) was recently ousted as House speaker.
Several of the top contenders for speaker of the House do not have favorable voting records on cannabis. Another challenge for SAFER is that the House is controlled by Republicans, who are generally less likely to favor legal reform that favors cannabis companies.
For broad exposure consider two exchange-traded funds, the AdvisorShares Pure U.S. Cannabis (MSOS) and the AdvisorShares MSOS 2X Daily (MSOX).
For insights on the best stocks to own, three other potential catalysts and the timing of those catalysts, please subscribe to the Cabot Cannabis Investor advisory.
[author_ad]
