We got word today that President Trump is expected to reclassify cannabis from a Schedule I drug to a Schedule III substance under the Controlled Substances Act.
If you’re unfamiliar, Schedule 1 drugs are classified as having no currently accepted medical use and a high potential for abuse. Clearly this isn’t true, and hasn’t been true since the War on Drugs was launched by Harry J. Anslinger in the 1930s as a way to persecute minorities.
Not until the early part of this century did we see pushback against cannabis prohibition, and an opportunity for investors to make a fortune.
To be sure, the cannabis industry by far was the most profitable industry for me in my 30-year career in finance. Getting in early allowed me to deliver gains in excess of 1,000% with multiple cannabis stocks, including …
- Aphria, Inc. (now combined with Tilray [NASDAQ: TLRY]) - 1,174.3% gain
- OrganiGram Holdings (NASDAQ: OGI) - 1,185% gain
- Canopy Growth Corporation (TSX: WEED) - 3,015.6% gain
Of course, that was a long time ago, and the cannabis market has leveled out quite a bit since then. But it’s getting another boost today with Trump’s expected move to make it easier for the cannabis industry to not only survive, but thrive.
You see, right now, cannabis still sits in the same federal category as heroin and LSD – a classification that denies the plant any recognized medical use and sharply limits access to banking, capital markets, and tax deductions for legal operators.
A move to Schedule III would treat cannabis more like prescription medications, thereby giving the industry legitimacy it has never had at the federal level and opening the door to lower tax burdens, easier financing, and broader institutional participation. And the market has already started pricing in the implications.
On the heels of the reclassification reports, major cannabis equities and ETFs surged, with companies like Tilray Brands, Curaleaf and Canopy Growth jumping more than 35%.
To be sure, this isn’t just a momentary pop. If rescheduling happens, it could unlock billions in new investment, relieve the crippling tax burden of Section 280E, and drive mergers, acquisitions, and expansion into pharmaceutical channels.
If you’re unfamiliar, 280E is a U.S. federal tax provision that disallows cannabis businesses from deducting most ordinary business expenses from their gross income. And because cannabis is still federally illegal, the government considers cannabis businesses to be “traffickers.”
But that all changes with rescheduling
Of course, from a logical perspective, cannabis shouldn’t be scheduled at all. Not when “legal” drugs such as alcohol, tobacco, and even sugar are far more dangerous than cannabis, but carry no federal scheduling burdens.
Regardless, a change is now underway, and it’s a change the cannabis industry has been anticipating for years.
If this goes through and the financial burdens of selling a Schedule 1 drug disappear, margins will go from razor-thin to considerably more attractive. And as a result, we could see the beginning of a multi-year re-rating of cannabis equities.
Some of the cannabis stocks likely to benefit the most include:
- Curaleaf (OTCBB: CURLF)
- Green Thumb Industries (OTCBB: GTBIF)
- Trulieve (OTCBB: TCNNF)
- Glass House Brands (OTCBB: GLASF)
- Cresco Labs (OTCBB: CRLBF)
Invest accordingly.
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