These are dark days for cannabis investors, maybe the darkest ever.
AdvisorShares Pure U.S. Cannabis (MSOS), one of the key benchmark exchange-traded funds in the space, is down 85% in the past five years against market gains of 80%.
As has always been the case, the fate of cannabis stocks is much more about politicians than the leadership and results at cannabis companies.
President Donald Trump promised game-changing policy reforms during the election. But so far, despite a flurry of activity out of the White House on immigration and government efficiency, not a word on cannabis.
This has left cannabis investors with a severe case of FUD, or fear, uncertainty and doubt. Is it time to go along with this deep market negativity and give up on the sector?
Since politicians are the key here, I recently checked in with one of the key cannabis lobbyists in Washington, D.C., David Mangone of the newly formed United States Cannabis Roundtable (USCR), the biggest cannabis lobbying group in the Capitol.
The bottom line: During the election, Trump fully supported key cannabis reforms like rescheduling and allowing banks to serve companies in the sector, and there’s no reason to think he has changed his mind.
“Trump is a very much a ‘promises made promises’ kept type of politician,” says Magnone. “I see no reason why he wouldn’t keep his promises on cannabis reform.” Magnone says his takeaway is confirmed in recent conversations with contacts in the administration and at key cannabis reform-related committees in the Senate and House.
As you struggle with daily declines in cannabis stocks, it’s worth remembering Trump never walked back his comments supporting cannabis reform. On the contrary, he reiterated them a few times during the election, though not since taking office.
The problem for impatient investors with itchy fingers is that it is tough to predict when reform will progress. The reason is simple. Cannabis reform has a lower priority than immigration reform and hunting down waste, fraud, and abuse in the federal bureaucracy. Patience required. But that does not mean it won’t happen. Here are some of this lobbyist’s thinking on key cannabis sector issues.
Rescheduling and the Future of Cannabis Company Cash Flow
The big potential federal reform for cannabis companies, of course, is rescheduling. This means moving cannabis to Schedule III from Schedule I under the Controlled Substances Act. This would neutralize an IRS rule called 280E which blocks companies from deducting operating expenses against sales of Schedule I substances.
Since this is so important that cannabis investors suffered yet another bout of depression when the Trump administration recently announced the appointment of Terrance Cole to head the Drug Enforcement Administration (DEA). Cole is a DEA lifer with a clear history of opposing cannabis legalization and use. The DEA plays a key role in rescheduling.
Concerns about Cole are overblown. After all, to me it makes sense that Trump would support a hard-liner on drug use, given his concerns about fentanyl abuse. And when it comes to cannabis policy reform, Trump seems like the kind of president who will stick to his agenda, and override “deep state” bureaucrats like Cole.
“President Trump supports moving cannabis to Schedule III, and his nominees are committed to enacting his agenda,” Magnone said in a USCR statement right after the Cole appointment. “We look forward to working with Trump administration officials, particularly at the Justice Department, to move our nation away from the failed policies of the past.”
Along these lines, as a cannabis investor, it might be a good idea to tone down your fears every time a cannabis media outlet digs up negative comments about cannabis from some newly appointed cabinet official.
Cassandras recently fanned fears about Trump’s commitment to cannabis reform when they dug up negative comments on cannabis from incoming Office of Management and Budget (OMB) head Russell Vought. He’s on record calling cannabis a “gateway drug” (a few years ago) and pushing back on state-level cannabis reform. The OMB can play a role in policy decisions, including on cannabis.
But concerns about Vought’s views on cannabis are overblown. “If the president decides he wants a particular policy, I can’t image that someone like Vought will be standing in the way,” says Magnone. “What’s different from previous administrations is that Trump will have the final say, rather than the bureaucrats and officials,” says Magnone. “I think what Trump says will be where the buck stops. Whatever comments there are that are inconsistent with Trump’s position, I don’t see them mattering all that much.”
Magnone likewise downplays the significance of a recent Senate bill that would block cannabis companies from taking federal tax deductions even if rescheduling neutralizes IRS rule 280E. The bill was introduced by Sens. James Lankford (R-OK) and Pete Ricketts (R-NE).
“These are two members of Congress that have never appreciated cannabis reforms and never will. They have deep personal opposition to the issue. Any time you see a bill that undoes progress at the state level, these two have their names on it. Them introducing a new bill on deductions regardless of rescheduling it is not terribly newsworthy for me.”
Given that so many states now collect lots of cannabis-related tax revenue because they have legalized, it will probably be challenging for the bill to get support from enough Republican Senators to pass. “Now that Republicans have a Senate majority, bills like this cannot be fully ignored,” says Magnone. “But it would be hard to get sixty votes to support something like this.”
Cannabis Banking Reform
Investors took it as a positive that support for reform that would allow banks to serve cannabis companies came up in a recent hearing on “debanking” of customers seemingly for political reasons. Politicians on both sides of the aisle expressed support for cannabis banking reform in the debanking hearing.
That was marginally positive. But the future here really depends more on what Trump does to follow through on his campaign backing of SAFER banking, as it’s called. “If the President renews his support, that will be a significant lightning bolt to move it forward,” says Magnone. “If he remains silent on it, it will be challenging to get Republican committees to take this up as a priority.”
Cannabis Legalization
Trump effectively backed the legalization of cannabis for recreational use when he openly supported a Florida referendum that would do this. But this doesn’t mean we will see federal legalization any time soon. Trump wants key policy decisions on matters like education and abortion in the hands of state politicians. It’s the same for cannabis legalization.
U.S. Exchange Stock Listing
One of the key challenges for cannabis companies is that they cannot list on U.S. stock exchanges. Though Trump has not specifically addressed this problem, it is an issue that should resonate with the President.
“I think it is a very compelling story for the Trump administration that Canadian companies can list on U.S. exchanges and domestic companies cannot,” says Magnone. “The policy of putting American companies first and having companies produce products in the U.S. is also helpful to that narrative. But I have not had in-depth conversations with the administration on this issue.”
Regrouped Cannabis Lobbying Efforts
The U.S. Cannabis Council (USCC) and National Cannabis Roundtable (NCR) recently united to create the sector’s new lobbying group, the U.S. Cannabis Roundtable. This could be a positive for cannabis investors, because it may help the industry speak to politicians with a unified voice. The group has the financial support of the big five in the space, Cresco Labs (CRLBF), Curaleaf (CURLF), Green Thumb (GTBIF), Trulieve (TCNNF) and Verano (VRNOF). But we will have to wait until the end of the first quarter to learn more from USCR filings about the group’s financial strength.
Meanwhile, USCR will keep industry heavyweights as advisors, like former Republican Colorado Senator Corey Gardner. David Culver from USCC will serve as lead lobbyist, and the new group has also hired Bryan Lanza, a partner at Mercury Public Affairs. Lanza is a Republican strategist who has served as a strategist and communications official for Trump.
Given that the future of cannabis stocks and the cannabis industry lies precariously in the hands of politicians, USCR’s efforts and financial strength are worth tracking.
Cannabis News from Around the World
Part of my core thesis for being bullish on cannabis stocks is that there continues to be tremendous cultural momentum toward cannabis reform around the world. I’m convinced institutional investors will not ignore cannabis stocks forever.
We see evidence of this powerful cultural momentum in the changes in laws to legalize cannabis, big tobacco investments in the space, robust cannabis sales growth in states that legalize, increased cultural acceptance in the form of relaxed drug testing standards in sports leagues and the workplace, and poll results that show a growing majority of people support legalization regardless of age and party affiliation.
These trends tell us cannabis stocks are a strong contrarian buy that will turn very profitable for patient investors with a medium-term horizon. The sector is so volatile, it is easy to get shaken out of names by heightened emotional reaction to drawdowns. So, it is important to catalogue evidence of this cultural momentum. That is the purpose of this section of Cabot Cannabis Investor.
Federal-Level News
* President Donald Trump’s nominee to head the Drug Enforcement Administration (DEA) is not a fan of cannabis legalization. In social media posts, nominee Terrance Cole expressed a “just say no” stance on cannabis, and concerns about potential links between cannabis and schizophrenia, problems with memory and learning, and suicide risk.
The market interpreted this as a negative. Cannabis stocks sold off on the news. That’s because the DEA is playing a key role in rescheduling which would help cannabis companies by reducing their federal tax burden.
However, there are a couple of mitigating factors to keep in mind. First, given Trump’s concerns about fentanyl deaths, one would expect him to nominate a career DEA hardliner on drug use. Cole has worked with the DEA for twenty-two years. Second, Trump supported rescheduling and medical use during his campaign. Of course, he could renege on this. But he also often repeats his “promises made, promises kept” mantra. So, a policy reversal may be unlikely.
Cole is also Virginia’s secretary of Public Safety and Homeland Security (PSHS), and he oversees the state’s Cannabis Control Authority (CCA).
* Two Republican senators recently introduced a bill that would prevent cannabis companies from deducting operating expenses on federal tax forms even if cannabis gets rescheduled. The bill, introduced by Sens. James Lankford (R-OK) and Pete Ricketts (R-NE) is called the “No Deductions for Marijuana Businesses Act.”
The chief benefit from rescheduling, or moving cannabis to Schedule III from Schedule I under the Controlled Substances Act, would be the neutralization of Internal Revenue Service (IRS) code 280E, which blocks deductions. Their bill would block this benefit. Lankford and Rickets are long-standing opponents of cannabis reform. The bill is unlikely to go anywhere.
State Reform Efforts
* Pennsylvania Gov. Josh Shapiro (D) has once again called for the legalization of recreational-use cannabis in his annual budget proposal. He said the reform is “long overdue” in part because of tax revenue lost to surrounding states that have already legalized sales. “We’re losing out on revenue,” he said. He estimated the first five years of legalized rec-use sales would bring in $1.3 billion in tax revenue. The state already permits medical-use sales.
* Regardless of political affiliation, most Texans support cannabis legalization, says a new survey. The poll found that 79% of respondents want the state to legalize medical cannabis, including 86% of Democrats, 75% of Republicans and 73% of independents. The poll also found that 71% of Democrats, 53 % of Republicans and 63% of independents support the legalization of recreational-use cannabis. The survey was done by the University of Houston’s Hobby School of Public Affairs.
* The Senate and House in Virginia have both approved a bill that would legalize cannabis sales. The bill would allow the purchase of cannabis from state-licensed retailers. Cannabis is legal in the state, but sales are not. Last year, a similar bill made it to Gov. Glenn Youngkin (R) who rejected it. I’d expect the same outcome this time.
* Hawaii has punted on cannabis legalization. The state’s House of Representatives recently voted to postpone consideration of a bill, HB 1246, that would have legalized recreational-use cannabis. The move pushes consideration until the next legislative session. Hawaii legalized medical use in 2000.
State Sales Trends
* Illinois cannabis stores sold $2 billion worth of product last year, up 2.5% from the year before. The stores sold more than $1.72 billion in recreational-use product and $285 million in medical cannabis, said the state. That makes Illinois the third-biggest state for annual cannabis sales, behind California at $4.7 billion, and Michigan at $3.3 billion. Illinois cannabis sales have doubled since the first year of recreational-use sales, which was 2020.
Price compression continued last year, an ongoing negative trend for cannabis companies. The average price per gram for rec-use flower at stores was $9 per gram in 2024, a 12.5% decrease from $10.29 a gram in 2023. About a fifth of Illinois sales last year were from purchases by people from out of state. But that was down from 31% in 2023 because Missouri launched legal rec-use cannabis sales in February 2023. Missouri posted $1.46 billion in cannabis sales last year.
* Ohio cannabis stores sold nearly $500 million worth of product in the first half year of legalized recreational-use sales through February 8. The state launched rec-use sales on August 7 last year. Cannabis prices plummeted 27% to $6.78 per gram from $9.40 in August.
Medical News
* Patients who use medical cannabis to treat pain often stop using other pain relievers like opioids, according to a Minnesota Office of Cannabis Management (OCM) study. The study of about 10,000 patients found that about a quarter of them reduced the use of other drugs after starting on medical cannabis to treat pain. About a third of the patients said cannabis helped treat their pain.
* Opioid prescriptions drop in states that legalize recreational-use cannabis sales, says a new study. “These results suggest that substitution of cannabis for traditional pain medications increases as the availability of recreational cannabis increases,” says the study. The study says this may “lead to decreases in the number of new opioid users, rates of opioid use disorder, and related harms.” The study, by researchers from the University of Chicago, University of Georgia, and Indiana University Bloomington, was published in the journal Cannabis.
Portfolio Company News
Organigram (OGI)
Organigram on February 11 reported 17% growth in fourth-quarter sales to $42.7 million compared to the prior year. The lion’s share of that $6 million gain in revenue came from the purchase of the Canadian cannabis company Motif Labs. But Organigram also reported a $2.3 million increase in international sales year over year.
The Motif Labs purchase makes Organigram the biggest recreational cannabis company in Canada. Organigram expects $10 million in annual cost savings related to the acquisition over the next two years, beginning next quarter. Motif Labs produces concentrates, extracts, topicals and vapes.
Organigram, which gets financial backing from British American Tobacco (BTI) or BAT, closed the quarter with $71 million in cash and minimal debt. Organigram said it will get another $41.5 million investment from BAT in late February, taking cash up to $113 million.
Organigram has the #1 market position in Canada in vapes, pre-rolls, milled flower, and hash, and the #3 position in edibles and dried flower.
Despite the sales growth, losses widened to $23 million from $15.8 million the year before. Expenses were up, but the company mainly attributed higher losses to accounting adjustments related to financing from BAT.
Organigram got $3.3 million from international sales and it said it expects international sales to increase throughout 2025. Organigram has supply agreements with partners in Germany, the U.K., Australia and Israel and is evaluating additional global partnerships. It expects sales in Europe to pick up once it gets European certification for its Moncton grow facility, expected in spring of 2025.
During the quarter, the company launched its proprietary nanoemulsion technology called “fast-acting soluble technology” which speeds up the effect of gummies. Organigram says the system creates 50% faster onset and doubles peak cannabinoid concentration compared to regular gummies. The high-tech gummies are called Edison Sonics.
Trulieve Cannabis (TCNNF)
Trulieve is opening another medical cannabis store in Florida. The store will open on February 14 in Middleburg, Florida.
What to Do Now
Patience is required, but I am sticking with the group and adding to positions.
First, consider the “get paid to wait” names offering rich yields in our Cabot Cannabis Insider portfolio. They are: Advanced Flower Capital (AFCG) and Chicago Atlantic Real Estate Finance (REFI). They offer yields in the 12% to 16% range. Both companies affirmed their dividend payouts in mid-December. They pay rich yields, but their stocks will go up, too, if cannabis reform progresses in Washington, D.C.
Otherwise, continue to hold or average down in our portfolio names. The best time to buy stocks is when they are widely hated, but plausible catalysts lie on the horizon. That is clearly the case with cannabis stocks now. But this is also the hardest time to buy stocks. That resistance may also be a signal to buy. As a general rule, some of your best stock purchase decisions will be the ones that are the hardest to make.
Consider taking both trading positions and multiyear positions in portfolio names now, or averaging down. I am personally averaging down in the current weakness.
Portfolio names are: Ayr Wellness (AYRWF), Cresco Labs (CRLBF), Curaleaf (CURLF), Cronos (CRON), AdvisorShares Pure U.S. Cannabis (MSOS), AdvisorShares MSOS 2X Daily (MSOX), ETFMG Alternative Harvest (MJ), Green Thumb (GTBIF), Organigram (OGI), Tilray Brands (TLRY), Trulieve (TCNNF) and Verano (VRNOF). For simplicity, consider getting exposure via MSOS or the leveraged version, MSOX.
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