Last month, Trump said his administration was considering reclassifying marijuana, which could also lead to lighter criminal penalties for its use.
According to Trump, cannabidiol, derived from hemp, could “revolutionize healthcare for seniors,” helping to slow the progression of diseases and acting as an alternative to prescription drugs.
US-traded stocks jumped: Canopy Growth added 18.3%, Tilray Brands rose 42%, Cronos Group rose 15.5%, and Aurora Cannabis rose 25.4%.
AdvisorShares stock market indices rose 21.8%, Roundhill 21.6%, and both are on track for record quarterly gains of more than 70% each.
“MSOS, the largest U.S. marijuana-focused ETF, stands to benefit from Trump’s surprise endorsement on Sunday of the potential benefits of CBD. Any support is huge for this under-pressure sector,” said Ben Laidler, head of equity strategy at Bradesco BBI.
The commercial use of hemp and CBD was greatly simplified by the passage of the Agriculture Improvement Act during Trump’s first presidential term.
However, marijuana is still classified as a Schedule I substance under the Controlled Substances Act, which means it has a high risk of abuse and no recognized medical use.
Former President Joe Biden directed the Department of Health and Human Services to review the status of marijuana, and the agency recommended moving it to Schedule III, a category for drugs with a moderate or low risk of addiction.
“Trump has already hinted that a reclassification is planned. This does not mean legalizing the drug, but it does take some of the burden off companies,” said Daniela Hathorne, senior market analyst at Capital.com.
“I really think there is potential for further upside in these stocks if the reclassification is confirmed to happen.”
Cannabis company stocks traditionally reflect fluctuations in each US administration’s protracted process of expanding marijuana legalization and are characterized by high volatility.
Some stocks, like Canopy Growth, have lost nearly half their value this year, while Cronos and SNDL have added more than 50% each (including Monday’s gains).
“We are encouraged by the US administration’s recognition of cannabis and its potential role in supporting the health and well-being of older adults,” said a representative for the Canadian company Canopy Growth.
“Canopy Growth is inspired by this momentum and, through its assets in Canopy USA, stands ready to actively participate as the path forward becomes clear.”
The reclassification would also remove the tax burden under Section 280E, which prohibits standard tax deductions for cannabis companies. If the tax barrier is removed, it could pave the way for more companies to go public on U.S. exchanges and attract institutional investors.
Reclassifying marijuana would also be the first step toward closing the gap between federal and state cannabis laws. It is currently legal in some form in nearly 40 states.
Source: Reuters