Cannabis Stocks Rise as DOJ Moves to Reclassify Marijuana as a Less Dangerous Drug
Pot stocks rallied on the news with shares of many cannabis companies up double-digits.
Cannabis stocks surged on Tuesday after the U.S. Department of Justice (DOJ) moved to reclassify marijuana as a less dangerous drug.
U.S.-listed pot stocks Tilray (TSX: TLRY) (NASDAQ: TLRY), Canopy Growth (TSX: WEED) (NASDAQ: CGC) and Cronos Group (TSX: CRON) (NASDAQ: CRON) rose between 14.9% and 67.7%, while AdvisorShares Pure U.S. Cannabis ETF (NYSEArca: MSOS) soared 24.8%.
Canadian-listed U.S. multi-state operators (MSOs) Trulieve (CSE: TRUL) (OTCQX: TCNNF) and Green Thumb Industries (CSE: GTII) (OTCQX: GTBIF) were also up 26.6% and 37.3%, respectively.
Cannabis firms are taxed under section 280E as a part of Schedule I drug, which disallows them from deducting normal business expenses from their profit, increasing the tax burden for the companies. Reclassifying to Schedule III would eliminate this tax, helping towards their profitability.
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In a research note, Alliance Global Partners (NYSE: GLP) analyst Aaron Grey wrote:
“This would result in meaningful cash benefits for operators and we estimate a cash benefit upwards of $150 mln.”
The proposal, which, if finalized, could potentially be the most significant shift in federal cannabis policy in 40 years, is being sent to the White House Office of Management and Budget for review and to finalize the rule-making process, sources told Reuters.
The reclassification will not legalize cannabis outright for recreational use.
Cannabis stocks experienced their largest bull run in 2018 after Canada legalized recreational marijuana use. However, the trend reversed the following year as underwhelming revenue numbers failed to justify the sky-high valuations.
This article was originally published on Reuters.com.
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