Weed Stocks Skyrocket, Could There Be More Upside? Analyst Draws Scenarios

The Department of Health and Human Services (HHS) suggested the DEA reclassify cannabis as a Schedule III controlled substance under federal law. Assistant Secretary for Health Rachel Levine's letter triggered a much-needed rally in cannabis stocks.

In a recent analyst note, a leading cannabis equity research firm, Zuanic & Associates (Z&A), delved into potential scenarios, after the transcended events. 

Seeking clarity, cannabis investors are invited to meet Pablo Zuanic, chief analyst at Z&A, at the Benzinga Cannabis Capital Conference in Chicago, September 27-28. Engage in conversations about the potential scenarios in the U.S. cannabis market and gain invaluable insights from a prominent industry analyst.

Options And Best-Case Scenarios

AdviserShares Pure US Cannabis ETF MSOS and the ETFMG Alternative Harvest ETF MJUS surged, accompanied by prominent companies such as Canopy Growth Corporation CGC, Curaleaf Holdings, Inc. CURLF, Tilray, Inc. TLRY, Cresco Labs, Inc. CRLBF, Green Thumb Industries Inc. GTBIF, and Trulieve Cannabis Corp. TCNNF.

Pablo Zuanic, Z&A's chief analyst, outlines three plausible scenarios for the future of the cannabis market in light of the HHS's reclassification recommendation.

These scenarios encompass moving medical cannabis to Schedule III, potentially enabling it to be federally approved as a pharmaceutical product, while maintaining stricter FDA oversight.

In “a best-case scenario,” Zuanic wrote the Executive Branch (White House, DOJ, HHS, DEA) can decide to:

• 1) Move medical cannabis to Schedule III (without changes in FDA oversight),
• 2) take recreational cannabis off Schedule I (without putting recreational cannabis into another Controlled Substances Act [CSA] schedule; essentially de-scheduling it), and,
• 3) allow states to continue to operate their respective cannabis programs (recreational and or medical) without federal interference or shipment of goods from other states.

“Importantly, under this best-case scenario logic, the benefits would go beyond tax relief (significant on their own if 280E no longer applies), as, theoretically, given this de facto legalization, banks with a federal charter could service the industry, and even US stock exchanges could uplist US plant-touching companies,” Zuanic clarified.

Cannabis In Pharmacies?

Zuanic also explained that if medical cannabis is moved to Schedule III, will it become a federally approved pharma product, “like all other products in the CSA under Schedule II to V that are deemed to have medical benefits, but follow strict procedures regarding production, packaging, labeling, distribution, and prescribing (Rx)," Zuanic wrote.

“In this context, would this mean much greater FDA oversight on production? Would pharmacies be allowed to sell medical cannabis? We think “Rx prescriptions” would follow a stricter process. We do not think putting MMJ in Schedule III can be done without an accompanying federal regulatory framework, while just leaving all this to each respective state, but we realize the debate is only now starting.”

Alternatively, removing recreational cannabis from Schedule I might not necessitate a CSA schedule, leading to de-scheduling. And, States could retain their respective cannabis programs without federal interference.

Also A Matter of Tax Collection

According to Z&A, the US legal cannabis industry paid $1.2-1.5Bn in income taxes in 2022, which is about 0.35% of the total US corporate income tax collected in 2022 ($425Bn).

While US cannabis sales in 2022 were ~$25Bn, “the total US retail sales were $7.1Tr (i.e., tax about 6% of sales for both). Do we assume those government officials removing 280E will want to come out with new sources of revenues (a federal excise tax on cannabis? but can that be done without federal legalization?” Zuanic said. “All this would obviously complicate and slow the process, even after a favorable review by the DEA.”

A Letter To The DEA

While optimism surrounds these scenarios, Zuanic's report raises pertinent questions. Will the White House's current level of detail address the intricacies of these potential changes?

As the DEA's response to the HHS recommendation looms, the cannabis industry braces for potential changes. Whether these scenarios translate into reality will significantly influence the industry's trajectory.

The upcoming Benzinga Cannabis Capital Conference in Chicago this Sept 27-28 offers a unique platform for investors and stakeholders to engage with experts and gain a comprehensive understanding of the industry's future landscape.

Get your tickets today before prices increase and secure a spot at the epicenter of cannabis investment and branding.

Photo: Janon Stock on Shutterstock and 420Odysseus on Twitter.