US, Canadian cannabis stocks rally after rescheduling report

(This story has been updated to include closing share prices.)

Cannabis stocks surged Tuesday afternoon on the 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. marijuana companies, jumped by roughly 26% within minutes of an Associated Press report, as shares of individual multistate operators defied gravity.

Shares of the exchange-traded fund closed at $11.26, up almost 25% for the day.

The rally wasn’t limited to U.S. cannabis shares, either.

Nasdaq-traded shares of Canadian cannabis company Canopy Growth Corp., which is working to enter the United States via a holding company, closed up nearly 79% at $14.88.

Shares of other plant-touching Canadian companies, including Aurora Cannabis, Cronos Group, Organigram Holdings, Tilray Brands and SNDL also gained ground.

Will the stock rally last?

Of course, cannabis stocks have rallied before on positive rescheduling-related news.

Will Tuesday’s marijuana equity rally be temporary or long-lasting?

That depends on the specifics of regulations or laws that stem from the DEA’s reported approval of rescheduling, said equity analyst Nadine Sarwat, director of North American cannabis with Bernstein Research.

“Obviously, anything that loosens the regulation on cannabis, even for medical purposes, increases the total addressable market, which is hugely valuable to these companies,” Sarwat told MJBizDaily in a Tuesday interview.

“The question still remains, where does recreational (cannabis) sit in this?”

Rescheduling marijuana to Schedule 3 would not be the same as full federal legalization.

‘Middle ground’ move

Sarwat characterized rescheduling as “a middle ground.”

“It’s very difficult to say, ‘Is this overdone or not?'” without knowing the DEA’s specific recommendation and any caveats it might include, as well as any resulting laws, she said.

Rescheduling could herald “much greater institutional ownership” of marijuana stocks, Owen Bennett, a cannabis stock analyst with New York-based investment bank Jefferies, wrote in a Tuesday afternoon research note to clients.

The DEA’s move also might have implications for U.S. plant-touching companies that want to list their shares on Wall Street, he added.

“Whether Schedule 3 alone is enough for major exchanges to allow listing remains to be seen,” Bennett wrote, “but we think prospects are much improved if we see Schedule 3 and other incremental reform such as SAFE Banking and, potentially, a new Cole Memo.”

In the meantime, he noted that one anticipated outcome of rescheduling marijuana to Schedule 3 – the elimination of 280E taxation on U.S. cannabis companies – “would provide a huge boost to company cashflows.”

Solomon Israel can be reached at solomon.israel@mjbizdaily.com.