Cannabis stocks on Monday traded as if president-elect Donald Trump has abandoned his marijuana reform policies.
I am not aware that this is the case.
One theory circulating was that cannabis stocks were weak because Sen. Rick Scott, (R) Florida, appeared on a short list of candidates for Senate majority leader. Scott is opposed to cannabis legalization. This suggested to investors that banking reform called SAFER banking stands only a limited chance of Congressional approval over the next four years.
But recall that rescheduling is the key federal reform up in the air. Trump has stated explicitly that he wants to see rescheduling. Since rescheduling is a federal agency decision (Drug Enforcement Administration), Scott would not likely play a direct role in the matter in a way that might allow him to influence the outcome.
The background here is that rescheduling to Schedule III from Schedule I under the Controlled Substances Act would boost cannabis company cash flow. It would do this by neutralizing an IRS provision which blocks the deduction of operating expenses against income from Schedule I substances.
Trump also overtly supports SAFER banking reform, so it is not unreasonable to think he might have the final say on the issue. Trump also supports decriminalization or legalization, according to campaign comments, which would be bullish for the group.
I’ve noticed one affirmation that Trump has not changed his views on cannabis reform. In a November 11 article on the outlook for cannabis reform under Trump, NPR says it asked the Trump transition team if there were any changes in his cannabis policy. While the response did not specifically address cannabis policy, the transition team rep told NPR that Trump will “implement the promises he made on the campaign trail.” That seems to cover cannabis policy, as well.
What to do now: I’m going to continue to hold my cannabis names despite the sharp decline on Monday, and I suggest you consider doing the same. I can’t advise on position size. But generally, mutual funds limit stock or ETF exposure to around 3%-5% of an overall portfolio. If you have room to average down without getting excessive exposure according to your own risk management guidelines, consider doing so.
Otherwise, I suggest simply holding here. I could be wrong, but I do not believe Trump has abandoned the cannabis reform policy he outlined during the campaign. That said, cannabis is not a top three priority. So, patience will be required. But I do not believe cannabis reform is off the table for the incoming administration, either. A regular refrain from Trump during the election campaign was: “Promises made, promises kept.”
Here is some more detail on the current dynamic.
* Sen. Scott has a mixed but negative record on cannabis. In November, he voted against the Florida amendment that would have approved recreational use, citing the death of his brother earlier this year. Scott attributed that to alcohol and drug use, including cannabis. So, it’s personal for him. “It messes up your life, and so that’s why I’ve never supported legalization of drugs,” he said, according to media accounts.
Scott does not have an entirely negative record on cannabis. Back in 2014 he signed a bill as Florida governor that legalized a strain of cannabis called Charlotte’s Web for the treatment of epileptic seizures and other diseases. The strain reportedly does not intoxicate users, but it has enough cannabidiol (CBD) to serve as a medical treatment. The bill was called SB 1030.
Scott also signed a measure (SB 1700) that shields patient records that contain references to medical use of cannabis. And Scott signed a bill allowing terminally ill patients to have access to cannabis (HB 307).
Then in 2017, Scott signed Florida’s main medical cannabis legalization bill, called SB 8A. He had little choice since voters had approved the change in a referendum supported by 71% of voters.
* The U.S. Cannabis Council remains confident that Trump will promulgate cannabis reform, as he promised during the election campaign. The council’s senior vice president of public affairs David Culver concedes Trump did little for cannabis in his first administration.
“We didn’t see a lot of activity from President Trump, if any at all, on cannabis reform,” he told NPR for an article published November 11. “But I think this time is going to be different. I think it’ll be up to President Trump and his administration to pick it up and finish it at some point in 2025. And I expect him to do so.”
As a reminder, here is a summary of the campaign comments of Trump and Trump allies on cannabis reform.
* Trump on legalization: “I believe it is time to end needless arrests and incarcerations of adults for small amounts of marijuana for personal use,” Trump said in a Truth Social post. “We must also implement smart regulations, while providing access for adults, to safe, tested product.” Trump said he would vote in favor of Florida’s referendum on legalizing recreational use.
* Trump on rescheduling and banking reform: “As President, we will continue to focus on research to unlock the medical uses of marijuana to a Schedule 3 drug, and work with Congress to pass common sense laws, including safe banking for state authorized companies.”
* Key allies who support cannabis reform: Robert F. Kennedy Jr. and former Hawaii representative Tulsi Gabbard, who will likely play a role in the new Trump administration, both support significant cannabis reform, including legalization. Trump ally and potential administration advisor Elon Musk smoked marijuana with Joe Rogan on Rogan’s podcast.
* Chief of staff: Trump has named Florida Republican Susie Wiles as his Chief of Staff. Wiles has worked for Ballard Partners, a Florida-based lobbying firm that represents Trulieve (TCNNF).
The will of voters
Recall that polls now consistently show a majority of voters on the left and right support legalization of cannabis. This was confirmed by the Florida vote on the legalization of recreational use. It was supported by 56% of Floridians. If a majority of voters in a conservative state like Florida approve legalization, that’s a sign the conservative politicians like Trump should likely pursue the reform he committed to in the election campaign.
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