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4 Catalysts Offer Hope for a Beaten-Down Cannabis Sector

Cannabis stocks are well off their 2024 highs, but investors are discounting four major catalysts that offer hope for the sector in the year ahead.


Cannabis stocks have been on a rollercoaster ride thus far in 2024. The year-to-date returns of the sector, as measured by the AdvisorShares Pure U.S. Cannabis ETF (MSOS), have been as high as 66% following positive rescheduling news in late April and as low as 3.4% in mid-June just a few weeks later.

We may not yet know the full effects of cannabis use on your mental health, but one thing’s for sure, cannabis investing causes bipolar disorder.

That’s in jest, but cannabis investors have most definitely swung back to a depressed state despite all the potentially positive news on the horizon.

So, to highlight why I remain bullish on the sector over the long term, here are the four most important catalysts I’m currently watching.

The 4 Catalysts Ahead

1. Rescheduling. The Drug Enforcement Agency (DEA) has published its proposed rescheduling rule, which would move cannabis to Schedule III from Schedule I under the Controlled Substances Act. This change would provide a huge boost to cannabis companies by exempting them from an onerous Internal Revenue rule called 280E which bars them from deducting operating expenses. The top five cannabis companies would save $560 million a year in taxes, based on their 2023 tax bills. The DEA proposed rule is now in a 60-day comment period.

2. Banking reform. The SAFER Banking Act, which would let banks handle cannabis companies as clients, continues to languish in Congress. Proponents like Senate majority leader Chuck Schumer (D-NY) maintain hope that there will be progress on passing this bill by the end of the year.

3. A Cole memorandum redux. Many sector analysts expect Attorney General Merrick Garland to issue a memo stating the federal government will not enforce cannabis laws in states that have legalized. A similar memo was published by Deputy Attorney General James Cole under the Barack Obama administration. The timing of a repeat is unknown, however.

4. State progress on legalization. Floridians will vote on legalizing recreational use in the November election. The referendum requires 60% approval by voters to pass. Polls show the vote will be close.

In their depressed state, cannabis investors are thinking progress on these catalysts will be delayed, or that they might not happen at all.

At times like these, it’s important to remember that what I call the “cultural momentum” towards cannabis reform remains strong.

This cultural momentum tips the outcomes of the four catalysts above strongly in favor of progress and reform. That means cannabis stocks look attractive in the current weakness, in my view.

We see evidence of this powerful cultural momentum in the changes in laws to legalize cannabis, robust cannabis sales growth in states that legalize, increased cultural acceptance in the form of relaxed drug testing standards, and poll results that show a growing majority of people support legalization. Here’s a roundup of recent examples.

* The number of Americans who use cannabis daily or nearly every day has surpassed the number who drink alcohol regularly, according to a study by Jonathan Caulkins at Carnegie Mellon University.

* California lawmakers approved a bill to legalize cannabis cafes. It was approved by the state Assembly by a 58-6 vote. It now goes to the Senate. Cafes would be able to offer food and non-alcoholic drinks, and host live events like concerts.

* A majority of Tennessee voters favor legalizing recreational cannabis, according to a poll conducted by Vanderbilt University.

* Nebraskans for Medical Marijuana says it has collected enough signatures to put medical cannabis legalization on the ballot in upcoming elections.

* Michigan’s cannabis retailers sold nearly $1.1 billion worth of marijuana products during the first four months of 2024, a 21% increase over the same time frame a year ago.

* New Hampshire’s Senate Judiciary Committee has approved a bill to legalize recreational-use cannabis sales. The state’s House approved legalization about a month ago.

* States that tax cannabis collected $20 billion in revenue as of the end of the first quarter of 2024 since launching legal sales, says Marijuana Policy Project. Last year they collected $4 billion, a record. The tally does not include taxes collected by cities and towns. The sizable tax takes support efforts to legalize cannabis in prohibition states.

* A majority of Texans, or 60%, support the legalization of cannabis, according to a new Texas Lyceum poll. Support was strongest among Democrats at 72%, vs. 49% among Republicans.

* The House Armed Services Committee approved a defense spending bill that includes a proposal to prohibit the military from testing recruits for cannabis.

Every month we see lots of evidence like this supporting my cultural momentum thesis. What does this mean for investors? Cannabis stocks look like a buy in their current state of weakness. For the best names to own, consider subscribing to Cabot Cannabis Investor today.

Michael Brush is an award-winning Manhattan-based financial writer who writes a stock market column for MarketWatch. He is editor of Brush Up on Stocks, an investment newsletter. Brush previously covered the stock market, business and economics for the New York Times, the Economist Group, MSN Money, and Money magazine.