Cannabis investors now need to brace for a big turning point in the group just around the corner.
Before we get to the details, here’s some background. The setup here is that the Senate Judiciary Committee recently approved the nomination of Terrance Cole to lead the Drug Enforcement Administration (DEA). The full Senate may vote on Cole’s confirmation as soon as early June.
This is key for cannabis stocks because Cole will address a Biden-era proposal to move cannabis to Schedule III from Schedule I under the Controlled Substances Act (CSA). The change would significantly enhance cannabis company cash flow. It would neutralize an IRS rule that bars operating expense deductions against revenue from the sale of Schedule I substances.
We can expect DEA action on rescheduling fairly soon because Cole said it would be a top priority. The tantalizing catch for cannabis investors is that in testimony Cole stopped short of indicating the extent to which he supports the rescheduling.
So, we are left reading the tea leaves. Here’s why they offer some positive signs, in my view.
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What Cole Could Mean for Cannabis Stocks
Big picture, recall that President Donald Trump campaigned on getting rescheduling done, to win the youth vote in swing states. It worked. Ominously for cannabis investors, however, Trump has begun to slip on his “promises made, promises kept” mantra. For example, he just failed to get no tax on Social Security in the “big beautiful” spending bill. And no, increasing the standard deductions for seniors is no substitute, despite White House claims. The savings are paltry, in comparison.
However, we recently got two incremental signs the administration may be serious about cannabis law reform, a view confirmed by industry insiders. “From what we are hearing, there is positive momentum at the federal level,” Verano (VRNOF) chief investment officer Aaron Miles told me in a recent interview. “We are still hearing that rescheduling is a big priority for this administration.” His company has a dedicated lobbyist in Washington, D.C. and it also collaborates with one of the main cannabis lobbying groups.
Here are two signs he may be right.
1) The Trump administration recently hired a prominent drug law reform advocate as a senior attorney.
The U.S. Department of Health and Human Services (HHS) hired Yetter Coleman partner Matt Zorn as deputy general counsel. An intellectual property and competition lawyer, Zorn has also filed several drug-reform lawsuits against the federal government.
This hire is an incremental positive for cannabis stocks because Zorn has long been an advocate of increasing access to cannabis for medical use and research. It’s no stretch to assume that the hire may be an administration policy statement that it favors improved access to Schedule I drugs for medical use and research.
After all, Zorn’s stance on this is clear. In an interview with Montel Williams, for example, Zorn described Controlled Substance Act (CSA) placement of cannabis in Schedule I as a “sham.” The problem, he says, is that to get stuck with Schedule I status, drugs have to have no currently accepted medical use.
“Nobody in their right mind would ever think that cannabis does not have an accepted medical use,” said Zorn in the Williams interview. As evidence, he cites the fact that plenty of doctors recommend cannabis to thousands of patients for medical reasons, in the forty states where this is legal.
“I would call it a fraud on the American public where there is administrative law that rigged the deck so it is impossible to prove cannabis is safe and effective, by not letting people study cannabis,” said Zorn in the Williams interview. Moving cannabis to Schedule III from Schedule I would improve medical access and allow more research on medical use.
The fly in the ointment for cannabis investors here is that HHS mostly likely hired Zorn to try to help find ways to improve medical access to psychedelics, not cannabis. HHS Secretary Robert F. Kennedy Jr. has been an open advocate of exploring the use of psychedelics to treat mental disorders like PTSD and traumatic brain injury, as has Veterans Affairs secretary Doug Collins and Food and Drug Administration head Marty Makary.
But it’s not too hard to find bullish angle for cannabis investors in the mix. If Zorn helps find a legal pathway that improves access to psychedelics for research and medical use, the same logic could be applied to cannabis, an attorney close to the matter tells me. This is not a complete stretch. President Donald Trump campaigned on moving cannabis to Schedule III to improve access for medical use. Kennedy said during his presidential campaign that he would legalize cannabis and psychedelics if elected.
The next incrementally bullish signal is that the DEA appears to have softened its stance on psychedelics. A church in Washington says the agency recently gave it permission to use the psychedelic drug ayahuasca in religious ceremonies.
The approval seems like a policy change at the DEA. During 2016-2024 the DEA reported that twenty-four petitioners had requested a religious exemption for various controlled substances, but as of early 2024 it had granted none of them, according to the Government Accountability Office (GAO).
The Church of Gaia made the request under the Religious Freedom Restoration Act (RFRA). It gives churches a way to request exceptions under the Controlled Substances Act (CSA).
The church claims ayahuasca is a ceremonial tool for accessing spiritual connection. “Ayahuasca is not just a plant, but a portal to understanding oneself, nature, and the interconnectedness of all,” says the church.
For investors, the recent DEA approval of ayahuasca as a ceremonial drug may serve as a portal to understanding what’s next for the cannabis sector from the Trump administration. It may not be as bad as the dismal 38% declines in cannabis stocks this year suggest. For the best stocks to own and other bullish signals for this beaten-down group, consider subscribing to Cabot Cannabis Investor here.
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