Regulatory Hurdles Remain Despite Cannabis Reclassification

Regulatory Hurdles Remain Despite Cannabis Reclassification

Tuesday afternoon saw a spike in cannabis stocks due to reports that the Biden administration might reclassify the substance as less harmful.
(Photo : by Johannes Simon/Getty Images)

Tuesday afternoon saw a spike in cannabis stocks due to reports that the Biden administration might reclassify the substance as less harmful. The green up pointing triangle exchange-traded fund, which follows a basket of US growers including Green Thumb Industries and Trulieve, rose 25% while the AdvisorShares Pure US Cannabis ETF MSOS increased by 0.52%.

Together with heroin, marijuana might become a Schedule III drug, similar to codeine and testosterone, from a Schedule I drug. Importantly, though, the federal prohibition on marijuana would remain in place.

This might be an attempt to appeal to younger voters before of this year's presidential election, as the Biden administration reviewed the categorization of cannabis in late 2022. Marijuana is a major business. Research company BDSA projects that U.S. sales of marijuana will surpass $30 billion in 2024, which is about one-third the size of the country's tobacco sector.

However, there are obstacles in the way of making the proposition a reality. The White House must examine it first, after which the public will have an opportunity to provide feedback. Organizations opposed to the drug's more permissive treatment may file a lawsuit, which would delay things. If Donald Trump is reelected president, he may attempt to unravel the plan, albeit this would take time.

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Potential Economic Benefits and Remaining Challenges

Reclassifying marijuana would have the most direct positive economic impact on American farmers' cash flows. Due to the harsh regulation of cannabis under the so-called 280E tax legislation, firms who deal with marijuana presently face effective tax rates of more than 70%. It is illegal for any business that sells Schedule I drugs to deduct ordinary costs from their taxes, including rent and travel expenditures.

According to U.S. grower Verano, if this limitation hadn't been in place, its predicted $149 million tax liability for 2023 might have been reduced by nearly $80 million. Reduced tax obligations would also enable legal businesses to take a more aggressive stance against their illicit competitors.

Reclassification would be an indication that the cannabis business is becoming more respectable and would rekindle the effort to pass the Safer Banking Act, a law that would allow cannabis firms to use standard banking services like checking accounts.

However, the plan won't address other issues. Major stock exchanges like Nasdaq will likely continue to be hesitant to allow U.S. marijuana firms to list as long as the federal government continues to prohibit the substance. As a result, American cannabis businesses have to trade on fewer liquid exchanges in Canada, where marijuana is lawful.

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The content provided on is for informational purposes only and is not intended as financial advice. Please consult with a professional financial advisor before making any investment decisions.

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