Vice President Kamala Harris sparked some March madness in cannabis stocks that sent the AdvisorShares Pure U.S. Cannabis (MSOS) soaring over 20%.
Now what?
The Harris rally has not yet fully played out, and three more catalysts could keep the momentum going, as well.
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First, let’s take a look at the potential developments ahead in the Harris rally. The group caught a bid because Vice President Harris urged the Drug Enforcement Agency (DEA) to get cracking on Biden administration reforms – in a public summit with the rapper Fat Joe on cannabis conviction pardons.
The context is that the Health and Human Services Department (HHS) has asked the DEA to soften its stance on cannabis by downgrading it to Schedule III from Schedule I under the Nixon-era Controlled Substances Act (CSA).
The change would help cannabis companies by boosting cash flow by neutralizing an Internal Revenue Service rule that bars the deduction of operating expenses against Schedule I drug revenue.
Now, cannabis investors await the next step at the federal level – which will come in the form of a proposed rescheduling rule from the DEA. This could land any day now.
But it is not the only news that will attract investors to cannabis names. Three other catalysts will help the group, starting next week.
1. European progress
Beginning April 1, cannabis will be decriminalized in Germany. People over 18 will be allowed to possess 25 grams of cannabis and grow up to three plants. Starting July 1, so-called “cannabis clubs” will be allowed to supply members.
But the big reform, for cannabis companies, lies elsewhere.
The country is also removing cannabis from its narcotics list. This will boost the medical market by freeing up doctors to prescribe more cannabis. Previously, they had limited cannabis prescriptions to create greater latitude in prescribing other drugs on the narcotics list.
Curaleaf (CURLF) founder and chairman Boris Jordan estimates this change could spark fivefold growth in the medical cannabis market. Demand in Germany will be supported by insurance reimbursement for users. Big picture, the change in Germany increases the momentum for reform and cannabis market development in other European countries – like France, Poland, Czechoslovakia and the U.K.
2. The Florida cannabis referendum
The Florida Supreme Court has until April 1 to rule on the language of a proposed recreational-use legalization referendum. If the court does nothing, the referendum gets automatically approved. Then measure will appear on the November ballot. It has to get 60% voter support. Survey research suggests there’s adequate voter support. Curaleaf’s Jordan thinks the move could double the size of the Florida cannabis market. If voters approve the change, recreational-use cannabis would kick in during July 2025. If the referendum gets the green light on April 1, that will attract investor interest in cannabis names, potentially driving them higher.
3. Cannabis banking reform
A new poll from the American Bankers Association (ABA) finds that 63% of Americans support federal reform that would allow banks to serve cannabis companies. The change could help worker safety at dispensaries – which are crime magnets because they have to operate in cash only.
“Americans have made it clear that Congress should resolve the ongoing conflict between state and federal law on cannabis banking issues by passing legislation that will enhance public safety, tax collection and transparency,” says ABA President Rob Nichols.
Lawmakers are on a holiday recess. But analysts and lobbyists speculate the full Senate may take up the SAFER Banking Act, which would allow banks to serve cannabis companies when lawmakers return to Washington, D.C. “There are good prospects of this legislation being passed in the next few months,” says Jefferies cannabis sector analyst Owen Bennett.
These aren’t the only potential catalysts for cannabis stocks that may play out this year. For analysis of other catalysts and guidance on the best ways to consider getting exposure in the cannabis space ahead of these developments, consider subscribing to Cabot Cannabis Investor.
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