Cannabis Stocks Soar on Potential DEA Reclassification to Schedule III

Cannabis stocks experienced a significant surge following reports indicating that the U.S. Drug Enforcement Administration (DEA) is considering reclassifying cannabis to a Schedule III controlled substance. This proposed move, if implemented, would represent a major shift in federal policy regarding cannabis regulation in the United States.

The Potential Reclassification

Under the Schedule III classification, cannabis would be categorized as having a "moderate-to-low potential for physical and psychological dependence." This adjustment is noteworthy considering that cannabis has long been classified as a Schedule I substance, alongside drugs like heroin and fentanyl, for over 50 years.

The potential reclassification prompted a notable rally in cannabis stocks, with the AdvisorShares Pure U.S. Cannabis ETF surging by 20%. Other cannabis exchange-traded funds (ETFs), such as the Amplify Alternative Harvest ETF, also experienced substantial gains, rising by 12.8%.

Individual cannabis stocks witnessed remarkable increases as well. Companies like Aurora Cannabis Inc., Canopy Growth Corp., and Trulieve Cannabis Corp. saw their stock prices rise significantly following the news. Other notable performers include Green Thumb Industries, Cresco Labs Inc., and Verano Holdings Corp., all experiencing substantial upticks in their stock values.

Analysts view the potential DEA reclassification as a significant development that could serve as a catalyst for the U.S. cannabis industry. Jefferies analyst Owen Bennett highlighted the possibility of increased institutional access to cannabis and predicted a positive impact on cash flow, particularly due to the potential removal of the 280E tax law requirement.

The move, if realized, would not legalize cannabis for recreational use but would mark the most significant policy change by the DEA since its establishment in 1970 under President Richard Nixon. Industry executives, including Verano Chief Executive George Archos and Sunburn Cannabis Chief Executive Brady Cobb, have expressed optimism about the potential reclassification, emphasizing the societal benefits and business opportunities it could bring.

The prospect of cannabis being reclassified to a Schedule III controlled substance has generated excitement within the cannabis industry and among investors, signaling potential shifts in regulation and market dynamics that could shape the future of the sector.