A flicker of hope for the weed business
For years, the dreams of the cannabis industry looked like they might go up in smoke, with the U.S. government classifying marijuana as a drug as dangerous as heroin. But the multibillion-dollar industry now has some hope that could change.
Shares in cannabis-related companies are soaring, as the Biden administration weighs easing federal restrictions on marijuana, though not completely decriminalizing it. The bet is that this will give the industry a new lease on life — though it shouldn’t expect big changes immediately.
What’s happening: The Justice Department said on Tuesday that it had recommended changing marijuana’s classification from a Schedule I drug (highly addictive with no medicinal use) to a Schedule III one (more like Tylenol with codeine). While the department can still prosecute offenders, it has already said doing so isn’t a high priority.
The news bolstered cannabis stocks. Shares in Tilray, a giant in the industry, jumped 39 percent on Tuesday, while those in Canopy Growth leaped nearly 79 percent. That’s welcome news for investors in both companies: Canopy Growth’s stock is down 97 percent over the past five years, while those in Tilray are down 95 percent.
New rules could unleash tax breaks that are unavailable for businesses that deal in Schedule I or Schedule II substances, possibly leading to lower prices and more hiring. It could also bolster investment: “We anticipate a surge in liquidity as sidelined capital enters the market, drawn by the potential for legal businesses to thrive,” Morgan Paxhia of Poseidon Asset Management said.
A big change would be whether financial giants will start working with cannabis companies. Service providers including Mastercard and brokerages don’t want to be involved in transactions involving federally prohibited substances. The re-entry of traditional financial services would be a huge boon for such companies.
It’s a decision that has been years in the making. President Biden ran for office in 2020 pledging to decriminalize marijuana and ease convictions over its use. It’s also not without controversy: Anne Milgram, the Drug Enforcement Administration’s administrator, raised concerns about the move.
The cannabis industry has also pushed back against existing federal laws. A group of companies has sued the Justice Department, arguing that the federal government was overstepping its constitutional authority over interstate commerce by restricting companies that operate entirely within states.
David Boies, the famed litigator representing those companies, said the Biden administration’s move was overdue. “It recognizes, as we have alleged, that there is no legitimate national interest in criminalizing marijuana legalized by the states,” he told DealBook.
H/T: www.nytimes.com
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