Marijuana stocks soared following an announcement by the U.S. Drug Enforcement Administration (DEA) that it plans to reclassify marijuana as a less dangerous drug. This potential change could entail tax advantages and signal a notable shift in American drug policy. In response to this news, cannabis stocks soared, led by Tilray Brands Inc. (NASDAQ: TLRY) rising 27%, and Canopy Growth Corp. (NASDAQ: CGC) up 26%.
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Meanwhile, the MJ PurePlay 100 Index surged 15%, which is the most stellar intraday rise since August 2023. AdvisorShares Pure US Cannabis ETF (NASDAQ: MSOS) jumped as much as 25% and triggered a trading halt due to volatility, indicating high investor interest.
Tax Relief Could Improve Profitability
Currently, in the U.S., cannabis businesses exist under a crippling tax burden, often exceeding 70%, according to industry reports. The DEA’s reclassification to a Schedule III drug could significantly reduce these taxes, bringing them more in line with other controlled substances. This would translate to improved profitability for cannabis companies, boosting their bottom lines and potentially fueling future growth.
Unlocking the Potential for More Research
The current schedule I classification has posed a major hurdle for cannabis research. The expected reclassification would open doors for more authorized clinical studies, which would allow scientists to have better access to and explore deeper into the potential medical benefits of marijuana.
This could lead to the development of new cannabis-based therapies, further fueling investor benefits from being in this sector.
Investor Takeaway
While details are new and many are still emerging, the potential for tax relief and increased medical research is a positive catalyst for cannabis stocks. There have been many times the markets expected rescheduling was imminent, but this announcement was clear. What was even clearer for investors was the market’s positive response to the news, resulting in stock price increases across companies in this sector.
