Marijuana stocks are despised once again, and that makes it a good time to buy them. Since the start of May, cannabis stocks are down nearly 30%, using the AdvisorShares Pure U.S. Cannabis ETF (MSOS) as a benchmark.
But things aren’t nearly as depressing as cannabis investors think.
Lots of potential catalysts could play out between now and the end of the year. Here are four that may boost the AdvisorShares ETF and the leading cannabis companies I cite below.
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Progress in the Year Ahead for Marijuana Stocks
1. Progress on “rescheduling”
This is the big one. The Controlled Substances Act (CSA) classifies cannabis as a Schedule I drug, alongside the worst of the worst, like heroin. To help attract younger voters, President Joe Biden wants to move cannabis to Schedule III.
The Department of Health and Human Services (HHS) has asked the Drug Enforcement Agency (DEA) and its parent the Department of Justice (DOJ) to reschedule. The DOJ has published a proposed rule to make this happen. It is in a 60-day comment period which ends July 22. After that, the DOJ could then implement the change, which would take effect in thirty days.
This would provide a huge boost to cannabis companies. The main benefit would come from the neutralization of an Internal Revenue Service provision called 280E which blocks cannabis companies from deducting operating expenses. Curaleaf (CURLF) founder and executive chair Boris Jordan says 280E nullification would save the company $150 million in 2024 taxes. Green Thumb (GTBIF) would save over $100 million. Cresco Labs (CRLBF) CFO Dennis Olis says his company would save about $70 million.
A final rule could be published by late September or early October, says Curaleaf’s Jordan, who is well connected to Washington, D.C. via lobbyists. “We’re optimistic that the change to Schedule III will be implemented in 2024,” agrees Ayr Wellness (AYRWF) CEO David Goubert. Cresco predicts a final rule could be published by November, says spokesperson Jason Erkes.
2. State legalization progress
Florida is key, on the state level. Voters will get to decide on a recreational-use legalization referendum in November. Since rec-use legalization can triple a state’s sales, Florida could become a huge $6 billion market.
Recent polls suggest voter support for rec-use comes in just below the 60% needed for approval. Kim Rivers, the CEO at Truelieve (TCNNF) which is Florida’s biggest cannabis company, counters that polls ahead of the 2016 medical-use referendum vote showed a similar shortfall. But that initiative was approved by 71% of voters.
Next, Ohio will launch rec-use sales this summer, which could turn cannabis into a $2 billion market there. Pennsylvania may approve rec-use sales over the next twelve months. “Pennsylvania could absolutely go adult use,” says Rivers. “Momentum continues to build for bipartisan adult use legislation,” she says.
3. Progress on cannabis banking reform
Banks don’t want to serve businesses selling an illegal product, so cannabis companies have to run stores in cash. This is cumbersome, and it attracts criminals.
That could change if Washington, D.C. approves banking reform called the Secure and Fair Enforcement Regulation Banking Act (SAFER). This potential catalyst has been kicking around for years. But progress on rescheduling could improve the odds of approval.
4. Progress in Europe
Germany is leading the way. It recently decriminalized cannabis by removing it from its narcotics list. This is boosting prescriptions. “We have seen a substantial increase in patient counts. These increases have surpassed expectations,” says Jordan at Curaleaf. The U.K. also allows medical-use sales. Other European countries will follow.
To learn more about which marijuana stocks I’m investing in now, subscribe to Cabot Cannabis Investor today.
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