(This article has been updated to include the stock's closing price.)
Cannabis stocks soared Tuesday afternoon following news that the U.S. Drug Enforcement Administration (DEA) intends to reclassify marijuana to Schedule 3 of the Controlled Substances Act.
The AdvisorShares Pure US Cannabis ETF, which tracks U.S. cannabis companies, soared about 26% within minutes of the Associated Press report, as stocks of individual operators across multiple states defied gravity.
Shares of the exchange-traded fund (ETF) rose about 25% on the day, closing at $11.26.
The rally wasn't limited to U.S. cannabis stocks.
Nasdaq-traded shares of Canadian cannabis company Canopy Growth Corp., which is seeking to enter the U.S. through a holding company, rose nearly 79% to close at $14.88.
Shares of other Canadian plant-based companies also rose, including Aurora Cannabis, Cronos Group, OrganiGram Holdings, Tilray Brands and SNDL.
Will stock prices continue to rise?
Of course, cannabis stocks have rallied on positive schedule-related news before.
Is Tuesday's rise in cannabis stocks temporary or long-term?
Nadine Sarwat, equity analyst and director of North American cannabis at Bernstein Research, said that depends on the regulatory and legal details resulting from the DEA's reported rescheduling approval.
“It's clear that anything that loosens regulations on cannabis, even for medical purposes, is going to expand the overall addressable market, which is extremely valuable to these companies,” Sarwat said in an interview Tuesday. told MJBizDaily.
“The question still remains: Where does recreational (marijuana) fit into this?”
Re-scheduling cannabis to Schedule 3 is not the same as full federal legalization.
“Mid-level” movements
Sarwat characterized the schedule change as a “halfway point.”
“It's very difficult to say, 'Is this going too far?' without knowing the DEA's specific recommendations, the caveats they might contain, and the resulting legislation,” she says.
Owen Bennett, a cannabis stock analyst at New York-based investment bank Jefferies, told clients Tuesday afternoon that the schedule change could lead to “further expansion of institutional ownership” in marijuana stocks. I mentioned it in my research note.
The DEA's move could also impact U.S. plant-touch companies seeking to list on Wall Street, he added.
“It remains to be seen whether Schedule 3 alone is sufficient for a major exchange to permit a listing,” Bennett wrote. Note. ”
However, he noted that one expected outcome of rescheduling marijuana to Schedule 3, namely the elimination of the 280E tax on U.S. cannabis companies, “would be a significant boost to corporate cash flow.” did.
Contact Solomon Israel at solomon.israel@mjbizdaily.com.
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