Here are my top eight predictions for the cannabis sector for 2025.
1. Cannabis rescheduling goes through
Promises made, promises kept. Trump loves a “deep state” challenge. Put these two together, and it seems probable that rescheduling could happen in 2025.
The background: Last year the U.S. Department of Health and Human Services (HHS) recommended that the Drug Enforcement Administration (DEA) and the Department of Justice move cannabis to Schedule III from Schedule I under the Controlled Substances Act.
This would be a big sector catalyst. IRS rule 280E prohibits the deduction of operating expenses against revenue from the sale of Schedule I substances. By definition, moving cannabis to Schedule III would neutralize this rule, adding tens of millions of dollars to cannabis company cash flow and earnings.
An administrative law judge inside the DEA will hold hearings on the pros and cons starting January 21 through early March. Oddly, the DEA is procedurally designated as an advocate for this change, even though it is pretty clearly opposed. The bias seems strong enough that cannabis companies and advocates have been filing legal challenges to get the DEA removed from the hearings process.
Whatever the outcome there, the DEA seems like a good example of the “deep state” opposing the policy objectives of elected officials, and by extension, voters.
Trump favors rescheduling. Trump has a low opinion of deep-state actors. That sets up the DEA for a knockdown by the Trump administration.
Bryan Lanza who worked in Trump’s 2024 election campaign and is now a lobbyist for the U.S. Cannabis Council (USCC) recently told Insider Cannabis rescheduling could be finalized in March. That timeline seems ambitious given the weighty Trump agenda that does not seem to feature cannabis reform as a high priority. But action by the end of 2025 is possible if Trump keeps his word (“promises made”).
Subjectively, I put the odds of rescheduling by year’s end at 70%.
2. Banking reform fails
Banks are generally prohibited from serving cannabis companies. Stores have to operate in cash, which makes them crime targets. It also complicates financing. For years, banking reform that would change this, called SAFER Banking, has been kicking around Congress. Cannabis advocates have been unable to convert the bill into law.
That seems unlikely to change this year. If Democrats failed to get this through when they controlled one or both sides of Congress, why would approval be any more likely under a Republican-controlled Congress?
Yes, incoming leaders of the Congressional Cannabis Caucus Rep. Dina Titus (D-NV) and Rep. Ilhan Omar (D-MN) have solid records as cannabis reform advocates. Titus says she wants to help the federal government “catch up” to states by advancing cannabis policy reform. Omar supports federal legalization. She cosponsored legislation to de-schedule cannabis.
Whatever their influence, it won’t stack up against Senate Majority Leader John Thune (R-SD), who says he is “not a fan” of SAFER Banking. Or House Speaker Mike Johnson (R-LA) who opposes cannabis reform.
True, Trump endorsed SAFER Banking during the election campaign. Trump also backed Florida’s initiative to legalize recreational cannabis, which makes him all-in on cannabis reform. But it is not clear he wants to spend political capital getting SAFER Banking through Congress.
I put the odds of SAFER banking getting approved this year at 15%.
3. Pennsylvania legalizes recreational use
Surrounded by states with legal sales, Pennsylvania hold-outs on legalization cave, accept the inevitable, and go for the tax revenue. The legislative pathway for this is uncertain as we enter 2025. But Gov. Josh Shapiro (D) says he will once again support cannabis legalization in his budget address in February.
“All the states around us have approved or are in the process of approving recreational marijuana,” says Shapiro. “Folks are going across state borders to purchase it and paying taxes to those states. They should be keeping their money right here in Pennsylvania.”
States with medical use (like Pennsylvania) that convert to recreational-use legalization see cannabis sales ramp up sharply. In theory, this should benefit cannabis companies. The problem is, states often then greenlight lots of stores, which increases supply and puts downward pressure on prices, a negative for cannabis operators.
The upside is that ongoing state legalization intensifies the cultural momentum behind the normalization of cannabis use. This puts pressure on federal-level politicians and agencies to enact reform. Federal changes like rescheduling, banking reform and decriminalization or legalization would be real catalysts for cannabis stocks.
I put the odds of Pennsylvania legalizing rec-use at 75%.
4. Price compression continues
Hungry for tax revenue, states continue to permit lots of new stores after they legalize. The additional supply puts downward pressure on prices – even in surrounding states.
Ohio is a good example. When stores started selling rec-use cannabis in August 2024 (medical was already legal), cannabis cost $9.40 per gram of flower. Prices dropped to $7.01 per gram by year’s end, says the Ohio Division of Cannabis Control.
Ohio is the rule, not the exception. The average price of cannabis flower in Oregon continued to fall sharply last year, hitting an all-time low of $3.51 per gram in December, according to the Oregon Liquor and Cannabis Commission. That was the third straight month of price declines. For context, when the state first began opening rec-use stores in 2016, cannabis cost $10.50 per gram. Prices have also fallen sharply in Michigan and Massachusetts, hitting $4 and $4.50 per gram respectively.
At some point, cannabis prices fall so much that it is no longer cost-effective to fund new supply, and prices find a floor. Companies that figured out how to lean out enough to survive in that environment will be the winners. We are not there yet.
I put the odds of further price compression this year at 95%.
5. Hemp drinks fall flat
Pardon the pun, but the “buzzy” new product in the cannabis sector this year will be intoxicating drinks containing THC derived from hemp.
Consumers love tasty drinks. And intoxicating hemp-based drinks have a market advantage in that they are technically legal. Federal lawmakers accidentally created a hemp loophole in the 2018 Farm Bill. States are pushing back. California has banned intoxicating hemp products, and it won’t be the only one.
However that plays out, hemp drinks won’t really contribute much to revenue growth this year. Once the new product “buzz” wears off, hemp drinks will just be another subcategory of edibles, which place third as a favored delivery mechanism, well behind flower and vapes.
I put the odds of underwhelming hemp drink revenue growth this year at 80%.
6. Sports leagues and workplaces continue to loosen rules around cannabis use
This will be important to cannabis investors because it supports the ongoing cultural momentum behind the normalization of cannabis use. This puts pressure on politicians to enact reform.
We’ve already seen the National Football League (NFL), the National Collegiate Athletic Association (NCAA), the Ultimate Fighting Championship (UFC) and the Nevada State Athletic Commission (NSAC) loosen the rules around cannabis use and testing. Expect more to come.
Major League Baseball (MLB), the National Basketball Association (NBA) and the Women’s National Basketball Association (WNBA) are OK with CBD product partnerships and endorsements.
Facing a shortage of police force recruits, Montgomery County, MD, wants to loosen restrictions on past cannabis use for applicants. Recruits are now disqualified if they used cannabis in the past three years.
“Past cannabis use is not a consideration in Virginia, so officers who can’t work in Montgomery County go across the river to Fairfax County, where they can work,” points out Montgomery County Executive Marc Elrich. California, New Jersey, Nevada and Arizona have all loosened cannabis use rules for police recruits in recent years.
I put the odds of these trends continuing in 2025 at 95%.
7. Polls continue to show increased support for legalization
That’s been the trend among people from all age groups and political parties. Even traditional holdouts like older conservatives are coming around. The trend will continue. This matters to cannabis investors because sooner or later, politicians respond to the wishes of voters. It’s already happening. For the first time in 2024, both presidential candidates supported all the key reforms: Rescheduling, SAFER banking, and legalization of rec-use.
I put the odds of public support for legalization moving higher this year at 100%.
8. Cannabis stocks get back into an uptrend
Drawing on its asynchronous nature as an asset class, cannabis stocks finish the year as one of the market’s top-performing sectors, especially if there is significant progress on rescheduling and state-level legalization.
Odds: 70%
What to Do Now
Continue to hold. Average down if you can. The best time to buy stocks is when they are widely hated, but plausible catalysts lie on the horizon. That is 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.
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 the leveraged version MSOX, and MJ.
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.
* A cannabis company and advocacy group have filed another request to remove the Drug Enforcement Administration (DEA) from the cannabis rescheduling process. They claim the DEA is too biased against change to act as a reform advocate.
Why this matters to cannabis investors: Moving cannabis to Schedule III from Schedule I under the Controlled Substances Act would be a major catalyst for sector stocks since it would allow companies to deduct operating expenses. This is currently prohibited for sales of Schedule I substances under IRS rule 280E. This reform might be more likely if the DEA’s role is minimized.
Attorneys for Village Farms International (VFF) and Hemp for Victory argue the DEA is blatantly biased against the change, has conflicts of interest, and has violated rules prohibiting undisclosed communication with parties that have an interest in the proposed reform.
Evidence “suggests the DEA is using its authority in these proceedings to subvert the process and thwart the Schedule III proposal which it vehemently opposes,” said Shane Pennington, a partner at Porter Wright Morris & Arthur, LLP who represents Village Farms and Hemp for Victory. Pennington called for a special hearing on the alleged communications with interested parties.
Pennington also argues the DEA continues to apply an old five-part test to assess whether cannabis has currently accepted medical uses, even though the Department of Justice’s Office of Legal Counsel (OLC) rejected this rule as “impermissibly narrow.” Instead, the OLC endorsed a new two-factor review standard used by the U.S. Department of Health and Human Services (HHS) to confirm there are enough currently accepted medical uses to support the HHS-recommended rescheduling.
* Congress appears to be “trapped in time” on cannabis policy. It seems oblivious to the changing attitudes towards cannabis reform demonstrated by the ongoing state-level legalization, says outgoing Rep. Earl Blumenauer (D-OR). On the bright side for cannabis investors, lawmakers appear to be “right on the edge” of enacting changes, the longstanding cannabis reform advocate said in an interview with C-SPAN.
* Wisconsin Gov. Tony Evers (D) says votes should be allowed to propose new laws via ballot initiatives. If this happens, it could pave the way for cannabis legalization given that there’s majority support for the change on both sides of the aisle. To date, the Republican-controlled legislature has blocked cannabis legalization. Evers said he will propose the right of voters to launch referenda in his upcoming budget plan. “Republican lawmakers shouldn’t be able to ignore the will of the people and then prevent the people from having a voice when the legislature fails to listen,” he said. Evers has identified cannabis reform as a top priority.
* New York state cannabis sales could double to hit $1.5 billion in 2025, predicts Office of Cannabis Management Executive Director Felicia Reid. One driver is that the state could see 350 cannabis stores open in 2025, say regulators. They also cite the ongoing crackdown on illegal stores. As of last month, New York cannabis stores sold $1 billion worth of product since recreational-use cannabis was legalized in 2022.
* In another sign of the changing cultural attitudes towards cannabis use, young adults aged 19-30 are now much more likely to use cannabis on a regular basis than alcohol, says a new study. Older people aged 55 to 65 favor alcohol for regular consumption, and people aged 35 to 50 prefer a mix of the two. The study was conducted by University of Michigan professor Megan Patrick. It was funded by
the National Institute on Drug Abuse and the National Institute on Alcohol Abuse and Alcoholism.
* The cannabis testing market will grow 17% a year to over $12 billion by 2034 from $2.5 billion in 2024, says Research and Markets, a research group. Tests commonly measure THC and CBD levels to gauge potency and for regulatory compliance and consumer safety.
* Cannabis legalization does not appear to make people more disposed to driving while under the influence, according to a recent study. The study looked at responses to survey questions asking drivers how acceptable it is for them to drive after cannabis use, how risky that is to personal safety, and if they had driven within an hour of use. It compared responses in states that have legalized and prohibition states. The study found little difference in the responses. The study was done by Nationwide Children’s Hospital and Ohio State University and published late last month in Biometrical Journal.
* New Jersey is now taking applications from people who want to operate licensed cannabis consumption lounges. The lounges would not be allowed to sell food or alcohol, though patrons can bring their own food or have it delivered.
* State-level 2024 sales results continue to confirm consumers are voting with their wallets in favor of mainstream acceptance of cannabis use. So far, 2024 cannabis sales in eight states have come in at nearly $1 billion or more. The sales are generating hundreds of millions in tax revenue. Here are some of the highlights.
California cannabis sales totaled $4.2 billion in 2024, generating over $900 million in tax revenue. The state launched legal sales in 2018.
Florida medical cannabis sales in 2024 came in at more than $1.8 billion. It is the largest medical cannabis market in the country.
Missouri posted $1.36 billion in cannabis sales last year, after reporting record December sales of $130.5 million. Missouri legalized cannabis in 2022, and sales launched in early 2023.
Arizona cannabis sales topped $1.2 billion in 2024, netting nearly $300 million in tax revenue.
Washington state posted $1.13 billion in 2024 cannabis sales, netting $420 million in tax revenue. Legal sales started in 2014.
New Jersey’s cannabis market surpassed $1 billion in 2024, nearly a 25% increase from the year before.
Oregon saw $960 million in legal cannabis sales last year, bringing in more than $163 million in taxes. That tax total excludes city taxes.
Nevada cannabis stores sold $802 million worth of product in 2024, generating $120 million in tax revenue.
Ohio cannabis sales came in at $378 million since it legalized rec-use on August 7.
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