Marijuana Rescheduling, Stock Market Reactions: Analyst Insights On Who Wins & Possible Trump Election

The anticipated shift of cannabis to Schedule III marks a pivotal moment for U.S. cannabis companies. In a detailed report, senior analyst Pablo Zuanic highlights key benefits of this change, including substantial improvements in cash flow and creditworthiness, influx of new capital, expansion prospects and growth in related industries.

The new developments include the official recommendation by the HHS to reschedule cannabis from Schedule I to Schedule III, and the Friday release of a detailed 252-page document providing a comprehensive rationale for this change, based on new data and research.

Major Catalysts For Sector Growth: Banking And Legal Implications

A major consequence of this rescheduling would be the facilitation of banking access for U.S. cannabis operators. This might render the SAFER Banking Act less critical and could lead to U.S. exchanges allowing the uplisting of U.S. plant-touching companies.

"With cannabis under Schedule III, the removal of 280E would significantly improve the cash flow picture and creditworthiness of US plant-touching companies,” Zuanic wrote. "This could also facilitate banking access for the US cannabis operators (making the SAFER Banking Act somewhat of a moot point)."

The report also discusses the potential impact of federal legalization of medical cannabis and the legal intricacies involved, particularly concerning state programs.

Political And Regulatory Dynamics

The recent recommendation by the HHS/FDA, based on updated research and perspectives on cannabis, is seen as a pivotal development. However, the timing and details of implementation remain uncertain, especially with the upcoming election and potential political shifts.

The report mentions the possibility of bifurcation between medical and recreational cannabis in regulatory treatment.

The Trump Overhang: Uncertainty In Cannabis Sector

Zuanic’s report addresses the potential ramifications of a Trump reelection, calling it the "Trump overhang."

Should Trump win the election, there's a possibility that the upside for cannabis stocks could be capped, creating a climate of uncertainty and potentially altering the course of cannabis rescheduling and implementation.

“What happens if ex-President Trump wins the presidential election? We call this the 'Trump overhang' (i.e., the upside for cannabis stocks could be capped)," Zuanic wrote.

Economic Impacts And Trading Perspectives

For cannabis companies, the removal of the tax burden under rule 280E could be transformative.

The report details the significant tax payments made by major Multi-State Operators (MSOs) and how the rescheduling could alleviate these financial strains. However, the sector remains volatile, with fluctuating investor sentiments and market dynamics.

"Relative to market cap and cash flow savings, the biggest beneficiaries of the rescheduling would be StateHouse STHZ, AYR AYRWF, Jushi JUSHF, and The Cannabist CBSTF,” Zuanic wrote.

“In 2022, these 20 MSOs paid a combined $735 million in taxes, with Curaleaf CURLF, Trulieve TCNNF, and Green Thumb GTBIF alone accounting for 57% of this total, despite comprising only about 40% of sales."

Long-Term Industry Outlook

Looking towards the future, the report highlights the potential for substantial growth in the cannabis market. Legalization and innovation could exponentially increase market size, benefiting companies with sustainable strategies and market presence.

"We try to avoid calling out 'trades' in the sector and prefer to think about investment ideas, on fundamentals,” Zuanic noted.

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