Speculation over potential rescheduling of cannabis and federal legalization cooled off considerably Friday, sending pot stocks into the red after spiking in the previous session.
Initially, stocks piled on double-digit gains late Thursday, but by Friday, shares fell back into the red under strong downward pressure in the broad equities market.
The AdvisorShares Pure US Cannabis ETF fell 2.4% Friday, after vaulting 34% in the previous session. The Cannabis ETF dropped 4%. Ayr Wellness dipped 5.2%, Curaleaf Holdings Inc. fell 4.2%, Cresco Labs fell 1.7% and Trulieve Cannabis Corp. moved up by 7%. Green Thumb Industries subtracted 6%, Verano fell 8.6%. Ascend Wellness fell 7% and MedMen rose 1.9%.
Cowen analyst Jaret Seiberg said Biden’s move to instruct the Treasury and the Health and Human Services chiefs to review the Schedule 1 status sparked optimism, but he predicted it could take several years to carry out.
“We see this as symbolically important but urge caution in setting expectation. Changes to how cannabis is scheduled will take years and could be litigated,” Seiberg said in a research note. “President Biden has never been aggressive on the policy front when it comes to cannabis….This is why it was a surprise.”
Benjamin Salisbury of Height Capital Markets estimated any potential rescheduling of cannabis could take up to three years and also runs the risk of a potential change in administration in 2024.
“The review process requested by Biden does not automatically result in the descheduling of cannabis,” Salisbury said in a research note. “It instead could result in rescheduling marijuana to a lower category on the Controlled Substances Act — something that advocates have pointed out could complicate medical and recreational marijuana programs in already-legal states.”
Both Salisbury and Cowen’s Seiberg said the move by Biden clouds the picture for a potential passage of the SAFE Banking bill to open up the financial system to cannabis companies. Some had hoped that SAFE Banking would pass after the election, but both analysts see this as less likely now.
However, Pablo Zuanic of Cantor Fitzgerald sounded a more hopeful about a SAFE Banking bill possibly reaching the floor of the Senate after being passed in several forms by the House.
“We believe the president’s actions will facilitate the negotiations between Senate Democrats and Republicans to pass SAFE Plus in the lame duck,” Zuanic said. “We also think this may reduce the pressure on Democrats to add several ‘restorative justice’ features to SAFE Plus that could take away Republican support to pass the bill with 60 votes needed.”
In another optimistic comment, Jefferies analysts Owen Bennett said Biden’s move to ask the health secretary and attorney general to review cannabis could mark a path to federal re-scheduling without a congressional action.
Along with a potential measure called SAFE Banking to open up the financial system, Bennett said re-scheduling cannabis would, “we believe, be enough to allow for uplistings, and in turn, significant inflows of new institutional capital.”
See: Cowen analyst sees fresh signs of a potential SAFE Banking cannabis bill
After seeing steep losses in their share prices this year, Cannabis CEOs released a chorus of optimistic statements around Biden’s move.
Curaleaf CEO Matt Darin said the president’s order marks “the first positive movement we have seen from the Biden administration with the potential to have major impact on the legal cannabis industry.”
Green Thumb Industries CEO Ben Kovler said, “while President Biden did not explicitly call for the descheduling or rescheduling of cannabis, his call to action could lead to expanded research and provide clinical data to help more Americans increase well-being through cannabis.”
Trulieve CEO Kim Rivers said, “This is truly a lifechanging day for thousands of individuals who have had their livelihoods and opportunities negatively impacted over simple cannabis possession charges.”
Currently cannabis is on Schedule 1 of the federal government’s list of controlled substances, along with heroin and LSD. It’s also considered more dangerous than fentanyl and cocaine under current guidelines.
With these restrictions in place, the cannabis sector remains illegal under federal law even as it’s become legal in many U.S. states. Any prospect of either re-scheduling cannabis to a lower level on the controlled substances list or possibly de-scheduling by removing from the list altogether would open up the sector to more capital and also allow for fast growth of the industry in many ways.
Also Read: Bronfman-backed Capsoil brings nano powder tech to cannabis with first edibles line
Vik Reklaitis contributed to this report.
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