It seems as though Canadian investors could be looking at pot stocks 2.0 in the near future. That market likely came back on many investor radars this week as Canadian pot stocks jumped by as much as 80%! And yet, it all comes down to news across the border. So let’s get into what’s going on, and if investors should get in, or get out.
What happened
The big news came as reports were released that the Drug Enforcement Administration (DEA) would be reclassifying marijuana as a less dangerous drug. After 50 years of having cannabis scheduled as a Schedule I narcotic, the substance would drop down to a Schedule III.
This is enormous. Right now, cannabis is listed with the likes of heroin. By dropping down to Schedule III, this would put it in the same territory as Tylenol with codeine. Furthermore, the proposal by the DEA would recognize the medical uses for cannabis, as well as potential for abuse – abuse that does not pose as dangerous of risks as other narcotics out there.
The move would be the biggest policy change by the DEA in the last 50 years. It still remains unclear when the announcement will be made. Furthermore, there are still hurdles to overcome. This would include a public hearing, as well as the incoming election. Should former President Donald Trump come back on board, we could see a veto against the ruling all together.
Growth for the marijuana industry
There are numerous financial benefits should the rescheduling come through. This includes companies that currently cannot write off basic business expenses because they are a cannabis company being able to claim them. Plus, it would mean that financial institutions could provide loans to these companies, leading the way for more growth and fewer losses.
Hence the jump in share price by as much as 80% for a company such as Canopy Growth (TSX: WEED). Canopy Growth stock has long been focused on the expansion of marijuana in the United States. Once rescheduled, the company would likely finalize its acquisitions of a number of U.S. cannabis companies.
Furthermore, it would mean the company would likely finally move to profitability, with the ability to write off expenses. And this goes for other companies as well. Companies such as Tilray (TSX: TLRY) also saw a share bump by as much as 42%, while Aurora Cannabis (TSX: ACB) rose 47%.
More to come?
The thing is, pot stocks from Canada that saw the largest bump are the big and bold ones. These companies have already expanded into the U.S. and have plans for more growth. Yet there is still way more work to be done.
As mentioned, cannabis stocks continue to face hurdles that they will need to overcome before they can span the U.S. What’s more, while cannabis could be a Schedule III substance soon, it would still be illegal on a federal level.
The big move will have to be when the entirety of the U.S. is on board for legal cannabis. This would come down to a state-by-state level. Even here though there has been massive progress, with Florida putting it on the ballot in the 2024 election.
Overall, cannabis stocks will remain an interesting investment over the next few years. And it does look like legalization will come to the U.S. eventually. The question is how long investors can hold onto those investments in the meantime, and if they still fit within their risk profile.
