Shares of publicly traded cannabis companies surged late Thursday and then declined Friday morning after U.S. President Joe Biden’s surprise announcement that he would direct the government to review the federal drug scheduling of marijuana and issue pardons for federal MJ-possession offenses.
The cannabis stock rally included exchange-traded funds that track the regulated cannabis industry.
The AdvisorShares Pure US Cannabis ETF was up about 34% in less than an hour on Thursday, Bloomberg News reported.
The ETFMG Alternative Harvest ETF was up Thursday by almost 20%, according to Reuters.
Both ETFs had given up some of their Thursday gains by Friday morning.
Shares of many U.S. multistate marijuana operators and ancillary companies – including Columbia Care, Cresco Labs, Curaleaf Holdings, Green Thumb Industries, Verano Holdings and WM Technology – mostly followed a similar pattern, shooting up late Thursday after the White House announcement.
The shares then declined to varying degrees during the first half of Friday trading.
A number of major publicly traded Canadian cannabis companies also experienced major share-price gains late Thursday followed by significant declines Friday, including Canopy Growth Corp., Cronos Group, Sundial Growers and Tilray Brands.
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Despite cannabis investors’ exuberance after Biden’s unexpected announcement, analysts warned that the president’s plan to review marijuana’s drug scheduling status would be lengthy and complex.
The process could also be “prone to various political influences,” Tamy Chen, cannabis equity analyst for Toronto-headquartered BMO Capital Markets, wrote in a Friday morning research note.
Still, analysts believe Biden’s announcement could bode well for the passage of the Safe Banking Act.
Pablo Zuanic, managing director at New York-based investment banking firm Cantor Fitzgerald, noted that the president’s federal pardons plan “begins the process of ‘restorative justice,’ called for by members of Congress like Sen. (Cory) Booker.”
On the other hand, Viven Azer, an analyst for New York-based Cowen, wrote that Biden’s move “could deprive cannabis advocates of the momentum they need to pass the SAFE Act.”
Although Biden’s Thursday announcement is “a positive development and shift in posture,” Azer wrote Friday, it “is largely symbolic and does not explicitly offer any near-term catalysts for (cannabis) equity valuations.”
U.S. cannabis share valuations “have been largely depressed because of its Schedule 1 status,” Owen Bennett, a cannabis equity analyst for New York-based investment bank Jefferies Group, wrote on Thursday.
“As a result, major exchanges won’t list these names and the vast majority of institutions won’t invest due to fear of federal prosecution.”
However, rescheduling marijuana and other developments could lead to cannabis equity “uplistings and a significant inflow of new institutional capital,” Bennet added.
Meanwhile, the spike in cannabis share prices poses a potential risk to the industry, Andrew Carter, Christopher Growe and Matthew Smith, analysts for St. Louis-based investment research firm Stifel GMP, warned on Friday.
“Regardless of the long-term implications, the near-term outperformance (of cannabis stocks) could facilitate continued irrational investment that has plagued the sector with the consequences of the late 2020/early 2021 surge manifesting in oversupply and saturation across the value chain in North America,” they wrote.
Solomon Israel can be reached at firstname.lastname@example.org.