Our cannabis stocks rose nicely yesterday on news that President Biden has asked the Justice Department (DOJ) and the Department of Health and Human Services (HHS) to review marijuana’s federal scheduling status.
As of the close Thursday, our stocks were up 30% compared to 18.5% for the Global Cannabis Stock Index, so Tim Lutts and I chose well.
The news is bullish for the group because it confirms the political will for cannabis reform that brings de-scheduling or re-scheduling under the Controlled Substances Act and other positive changes on banking and tax treatment of retailers.
However, the bottom line is that any decriminalization change at the federal level will likely be slow to evolve. Thus, I am trimming some positions into this rally. If you simply bought with a 5- 10-year horizon (which makes sense), do nothing. If you have a trading component to your investment approach, consider trimming into this rally. We will likely be able to buy the same stocks back cheaper in the future.
I am selling our entire position in Tilray Brands (TLRY) at 3.47 for 18% gains; our entire position in ETFMG Alternative Harvest ETF (MJ) at 5.48 for 12% gains; and I am selling partial positions ($7,000 each) of Curaleaf (CURLF) at 6.33 for 28% gains, and Green Thumb (GTBIF) at 13.35 for 83% gains.
Here is more detail on my logic.
I’ve studied the rescheduling process and basically there are three approaches, none of them quick or easy. 1) Congress can change the Controlled Substances Act. 2) The administration can ask the DOJ and HHS to reschedule. 3) Through “nullification” advocates could seek to prove the federal government has forfeited the right to enforce the law on cannabis because it has neglected to do so for so long.
Yesterday’s development takes the second approach. However, this route requires the presentation of scientific evidence negating the factors that put cannabis in the schedule one category to begin with. Advocates for change must show cannabis has medical applications, and there is a low likelihood of abuse, harm and addiction. Based on my read of the scientific literature, this is possible, but it won’t be quick or easy.
On the other hand, as we saw with student debt forgiveness, the unexpected can readily happen in today’s political environment, so anything is possible. I still put low odds of quick reform on cannabis legalization. I am not alone.
“We see this as symbolically important but urge caution in setting expectation. Changes to how cannabis is scheduled will take years and could be litigated,” says Cowen analyst Jaret Seiberg. “This is not going to quickly lead to cannabis legalization. Re-scheduling or de-scheduling is a lengthy process that could go beyond 2028.”
“President Biden’s administrative request could catalyze Congress to more seriously evaluate full federal cannabis reform. But any change will likely be slow to take hold,” says Stifel analyst W. Andrew Carter.
According to press reports in Marijuana Moment, while Biden is asking for an expeditious review process it will “take some time because it must be based on a careful consideration of all of the available evidence, including scientific and medical information that’s available. This is meant to proceed swiftly. But, you know, this has to be a serious and considerate review of the available evidence. So, he’s not setting an artificial timeline, but he is saying this needs to be expeditious.”