It’s been a while since the public markets were excited about cannabis. But suddenly, that’s all changed.
Seemingly out of nowhere, officials from the Department of Health and Human Services recommended that the Drug Enforcement Administration move cannabis from a Schedule I drug to a lower risk category.
The big picture:
- Cannabis companies in the United States have been held back by being considered a Schedule I drug by the DEA
- This puts limitations on everything from banking, to advertising to the tax code that cannabis companies fall under
- Even though cannabis is legal in all but four States, the federal laws that govern the United States as whole have yet to change
Why it matters:
- Taking cannabis from a Schedule I drug to a Schedule III drug would open the floodgates for startups and public companies in cannabis
- Schedule I drugs in the United States include drugs like heroin, LSD, and ecstasy
- Currently, getting an operating cannabis company listed on major United States stock exchanges is a difficult process from a regulatory perspective, which has vastly limited the access to capital for emerging companies
- If the DEA changes the classification of cannabis then major banks and institutions would finally be able to participate in backing cannabis companies
By the numbers:
- The market reaction to the news has been dramatic, with many public companies seeing their share price rocket
- AdvisorShares Pure US Cannabis ETF (NYSE: MSOS) is up more than 89% since the announcement
- Shares of Canopy Growth (NYSE: CGC) are up more than 200% since the announcement, adding nearly half a billion dollars in market capitalization
The fine print:
- Cannabis companies have been neglected by many investors over the last few years, with regulatory uncertainty, banking restrictions, turbulent tax challenges and other obstacles
- While the results of the FDA review of cannabis led the Department Health and Human Services to make an official request to the DEA, the DEA has not yet changed their stance on cannabis
- Currently, the DEA has not commented at all other than to say they have received the findings of the review and would begin their own process of evaluating the information
