Marijuana stocks explode following rescheduling news
Zachary Halaschak
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Stocks of cannabis companies are posting enormous gains following news that the Department of Health and Human Services is endorsing looser federal regulations related to the drug.
It was revealed on Wednesday that HHS is recommending that the Drug Enforcement Agency move marijuana from a Schedule I-listed drug to Schedule III under the Controlled Substances Act. The move would be a boon for marijuana companies who have been pushing for marijuana to be delisted or at least downgraded, and their stock performance is reflecting that.
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Curaleaf, which operates in 19 states and is the largest marijuana company by market capitalization, was up by a whopping 45% since the news first began to circulate on Wednesday afternoon. Green Thumb Industries has risen 42%, Canopy Growth notched a 52% gain, and Trulieve Cannabis has skyrocketed nearly 55% since Wednesday afternoon.
Mitch Baruchowitz, founder and managing partner of cannabis private equity firm Merida Capital Holdings, which has more than $400 million in assets under management, said the move is huge for the industry. If the DEA accepts the HHS recommendation, it could represent the biggest change in U.S. drug policy in decades.
“For just the industry it’s a tremendous deal,” Baruchowitz told the Washington Examiner in a Thursday interview. He noted that it is the first time that an executive-level agency has recommended that there be a fundamental and permanent change to U.S. cannabis rules.
Schedule I drugs are substances that the government deems to have a high potential for abuse and hold no currently accepted medical use. They include drugs such as heroin, LSD, and MDMA. Schedule III drugs are those with a low to moderate potential for physical and psychological dependence and include substances such as testosterone, ketamine, and anabolic steroids.
The recommendation comes after President Joe Biden ordered a comprehensive review of available marijuana research to assess whether there should be any scheduling changes. Biden at the time also granted a pardon to all people who were federally convicted of simple marijuana possession.
A major factor in a potential rescheduling for cannabis companies is taxation. Because marijuana is a Schedule I drug, companies can’t take standard tax deductions, but that prohibition doesn’t apply to Schedule III substances.
While once illegal in all 50 states and at the federal level, marijuana has become more accepted for both medical and recreational use. There has been a growing mismatch between federal and state drug policy — 37 states and the District of Columbia have legalized medical marijuana. Twenty-three states have gone even further and legalized the drug for adult use.
Public opinion on the matter has also evolved, and quickly. Nearly 70% of Americans support legalizing marijuana in some form, according to polling by Gallup. That is up from under 50% a decade ago and around 34% two decades ago.
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Baruchowitz said that the cannabis industry is now probably in its third act. He said the first act was the growth stage of building a state-level infrastructure for medical and adult use in several states and the second act was when bigger companies started to get more involved, but there has been a bit of a plateau because of the tax issues and other constraints. This latest move will fuel even more growth in the industry, Baruchowitz said.
“Now you’re going to start to see, I think, federal rulemaking and state-level rulemaking react to the fact that this truly is the precipice of normalization, where people view it as what it is — just a natural plant that can be used for a variety of reasons and isn’t so different than other substances that are both legal medically and legal for anytime use,” he said.