Marijuana penny stocks and higher-priced cannabis stocks are having a moment in the stock market right now. Mainstream stock market news is about inflation being high, and considered a negative. However, there is a niche in the market where “being high” is seen as a positive. That is, at least as far as pot sales are concerned.
Thanks to legislative headlines about the outlook for the US cannabis industry, speculators are saddling back up. This is one of the most bullish trends seen in the last three years. Top MSOS stocks, industry ETFs, and funds are rallying behind these names. Why are marijuana stocks up right now?
HHS Recommends Rescheduling Marijuana
The Department of Health and Human Services (HHS) has formally recommended that the Drug Enforcement Administration (DEA) reclassify marijuana. The idea is to take it from a Schedule I to a Schedule III drug under the Controlled Substances Act. This recommendation comes 11 months after President Biden directed HHS to review marijuana’s legal status. Marijuana is currently in the same Schedule I category as drugs like heroin. That means it is considered to have a high potential for abuse and no accepted medical use.
Rescheduling marijuana to Schedule III would eliminate an IRS code that prevents marijuana businesses from deducting ordinary business expenses. That could potentially save the industry hundreds of millions of dollars annually. The Biden administration had hoped to announce the rescheduling this fall. However, the timeline depends on how long the DEA’s review takes. The DEA has ultimate authority over drug scheduling.
Reactions and Outlook
There is bipartisan support in Congress for easing federal restrictions on marijuana. However, it has been legalized in some form by 40 states. Some congressional Republicans have urged Biden to prioritize rescheduling marijuana. Additionally, lawmakers are working to pass banking reform legislation allowing banks to service state-legal cannabis companies.
Rescheduling pot is seen as an incremental step. Advocates say more reforms are needed to align federal law with state policies fully. Rescheduling marijuana and banking reform are ways the federal government can start acknowledging marijuana’s medical contributions. It could also reduce the harm caused by restrictive national laws.
Senate Majority Leader Chuck Schumer (D-NY) released the following statement on the Department of Health and Human Services (HHS) recommendation to the Drug Enforcement Agency (DEA) to move marijuana from a Schedule I to a Schedule III controlled substance:
“HHS has done the right thing, and DEA should now quickly follow through on this important step to greatly reduce the harm caused by draconian marijuana laws. While this is a step forward, there is still much more that needs to be done legislatively to end the federal prohibition on cannabis and roll back the War on Drugs. I am committed to continuing to work in Congress to pass important marijuana legislation and criminal justice reform.”
MSOS Stocks Surge
One of the most popular industry ETFs is the AdvisorShares Pure US Cannabis ETF (NYSEARCA: MSOS). It has 28 holdings in addition to any cash on hand. While it might seem like the top MSOS stocks are listed on major exchanges, the largest holdings regarding MSOS stocks are listed on the OTC. In fact, 22.37% of the entire weight among MSOS stocks is in Green Thumb Industries (OTCMKTS: GTBIF).
Shares of GTBIF stock have exploded amid these HHS cannabis news. Green Thumb is a consumer packaged goods company and owns RISE Dispensaries. The Chicago-based company has 18 production facilities and 85 open retail locations with operations in 15 U.S. markets. News of its recent share buyback has also boosted momentum in the market for GTBIF stock. In a September 5th update, Green Thumb Founder, Chairman, and Chief Executive Officer Ben Kovler took a page out of Warren Buffett’s book.
Kovler said, “As Warren Buffett taught us in this year’s Berkshire Hathaway annual letter to shareholders, ‘The math isn’t complicated: When the share count goes down, your interest in our [business] goes up. Every small bit helps if repurchases are made at value-accretive prices.’ We are excited about the future for Green Thumb and cannabis in America,”
Penny Stocks To Watch
While OTC cannabis stocks are taking up the majority of MSOS stocks, a good portion of the market is fixated on companies listed on major exchanges. This is due to the inability of many funds and retail traders with Robinhood and Webull accounts being blocked from trading OTC-listed names. Here are a handful of the most active, even though they aren’t technically MSOS stocks.
Canopy Growth Corporation (CGC)
Canopy Growth is a shell of what it once was in terms of stock price. However, the last few sessions have seen CGC stock rally back from levels around its 52-week lows. The trend at the end of August is off to a stronger start.
There was also more notable news in the middle of last month that had helped ignite some interest. Canopy Growth agreed to the sale of its Hershey Drive facility in Ontario, Canada. Canopy will retain its Smiths Falls-based post-harvest manufacturing facility. “Our intent to purchase the Hershey Drive property in Smiths Falls is another example of the strategic investments we’re making in our supply chain network and our Canadian operations to support growth,” said Jason Reiman, Chief Supply Chain Officer, The Hershey Company.
Canopy recently launched a distillate-infused pre-roll line with up to 39% THC. The offering comes from its brands Tweed, 7ACRES, and Spectrum Therapeutics. This news, paired with the overarching legislative speculation, has helped give CGC stock a boost in the stock market in September. The question, as with all marijuana stock breakout rallies, is, can it last?
Cronos Group (CRON)
Cronos Group has experienced a significant surge in stock price as well. Shares haven’t seen action like this since last year. Furthermore, the company’s recovery after publishing its most recent earnings has been notable.
Last month, Cronos reported its second-quarter results. In it, the company posted an earnings per share beat. However, it said net revenue guidance would be discontinued due to market conditions. Cronos also revealed it will wind down its fermentation facility in Canada and list it for sale. Although net revenues declined for the quarter, management seems optimistic about prospects.
Mike Gorenstein, Chairman, President, and CEO of Cronos, explained, “Our teams in Canada continued to push forward in the edibles category, maintaining our number one market share position while bringing innovation to our pre-roll and vape portfolios. Turning to Israel, despite the slowdown in patient growth and political unrest, our team stayed focused on successfully maintaining one of the top positions in the market, driven by our high-quality flower offerings and distribution in nearly all pharmacies.”
Gorenstein is also optimistic about the company’s international prospects, “With the new regulations intended to create more accessibility for patients set to go into effect in Israel in December 2023, we continue to be excited about the runway for growth in that market.”
Tilray Brands (TLRY)
Billed as a cannabis lifestyle and consumer packaged goods company, Tilray Brands has also climbed higher this week. Unlike many other cannabis stocks jumping after legislative news, TLRY stock has remained in an uptrend since reporting earnings in July.
The company reported a record Q4 net revenue of $184 million. This was a 20% growth above its previous year. Tilray also posted $627 million in net revenue for its full fiscal year 2023. CEO Irwin Simon also explained, “The recent closing of the HEXO transaction has boosted our competitive positioning in Canada, the largest, federally legalized cannabis market in the world. We are working towards a seamless integration into our efficient, built-to-last platforms as we leverage our deep CPG expertise and track record to drive both revenue and cost synergies while expanding product distribution in Canada and across international markets.”
This week, Tilray announced the launch of a new flower genetics by Redecan. The brand introduces a limited edition series of whole-flower cannabis genetics in two indica strains cultivated by master growers. In response to the milestone, the President of Tilray Canada, Blair MacNeil, said, “With the introduction of our limited-edition strains, we are pushing the boundaries of cannabis cultivation and taking our commitment to product excellence to new heights. These new offerings build upon Redecan’s legacy of best-selling products and set the stage for continued evolution of the brand.”
TLRY stock has firmly filled its previous gap down from May, holding price levels similar to those in early February.