Yesterday we learned that the Drug Enforcement Agency (DEA) has decided to hold an administrative law judge (ALJ) hearing on rescheduling cannabis. It is set for December 2.
The decision dashes all hopes of rescheduling before the election, sending cannabis stocks much lower.
Investors are surprised because many political insiders had predicted rescheduling would happen before the elections – including Rep. Nancy Mace (D-SC) in a public interview literally hours before the DEA announcement.
I am a buyer here, not a seller. I will have more details in the Cabot Cannabis Investor issue published Wednesday, but here are the highlights of my thinking.
* Anything is possible, but it is hard to imagine sentiment getting more negative towards the cannabis group. Generally, times of negative sentiment extremes are times to buy, or at least not sell.
* Cannabis stocks now trade below where they traded at the start of 2023, before rescheduling came into focus as a possibility. Yet arguably the sector is better off now (better balance sheets, more large states have legalized and more on the way, excess capacity has been removed and price compression has eased).
The DEA’s ALJ hearing decision does not mean rescheduling will not happen, though it does push out the timeline. Since a timeline is difficult to predict, the key takeaway here is that scheduling the hearing after the elections politicizes cannabis to a much greater extent. Progress on federal-level cannabis reform now depends quite a bit more on the presidential election outcome.
A victory by Vice President Kamala Harris and Minnesota Governor Tim Walz would be a win for cannabis, since both favor legalization. Polls and betting sites suggest Harris-Walz are in the running, though it is still early. But even Donald Trump has made more positive comments about cannabis reform in recent public comments, suggesting a softening of his stance.
* Several bullish trends still favor the sector, including more large states legalizing (recently Ohio and Maryland, next up possibly Florida and Pennsylvania); ongoing progress on market liberalization in Europe; and a growing acceptance of cannabis and its use in the U.S., seen in both poll results and rapid sales growth. The latter should sway politicians towards a more favorable view on cannabis policy.
I will have more details Wednesday.
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