Biden's Weed Promise, The Federal Govt. & 2024 Elections: Analyzing Stock Values, Taxes & Timing

Amidst President Joe Biden’s campaign promises, rescheduling marijuana from Schedule I to Schedule III is seen as the most impactful on the stock market, possibly positively fueling stock rallies.

The possible reclassification of marijuana and its profound effects on the cannabis stock market is the central theme of an in-depth equity research report by Pablo Zuanic senior analyst of Zuanic & Associates.

Factors Influencing Market Impact

The report highlights several critical factors that will influence the extent of this impact, including the manner and timing of the announcement, the length of the comment period and the content of the DEA memo.

Zuanic expresses concern over the possible involvement of pharmaceutical and alcohol lobbies during the comment period and the mixed reactions from both liberal and conservative sides towards rescheduling —a swift process concluding before the election is deemed favorable for stocks.

Uncertainties And Regulatory Framework

The DEA’s pending decision could follow the conventional wisdom of moving marijuana to Schedule III, but uncertainties remain regarding the DOJ's final stance and regulatory framework.

“While the HHS oversees the scientific and medical evaluation of the scheduling review, the DEA looks at statutory and regulatory criteria in making its decision. If detailed enough, this could be the basis for the “DOJ framework,” Zuanic wrote.

Regarding cannabis rescheduling, Zuanic wondered: “Will the DEA accept the 'conventional wisdom' narrative, and just say 'Yes move it to III, and leave everything else to the states'?"

“We are doubtful this will be the case. We expect the DEA to recommend a regulatory framework consistent with all other substances and drugs in Schedule III; other than that, they may acknowledge the better regulatory route would be to just deschedule,” Zuanic wrote.

“The best-case scenario for stocks is the 'conventional wisdom' route, anything else could open an unwelcome Pandora’s box for the industry.”

Can Biden Keep His Cannabis Promises?

The report also touches on the Biden campaign’s promises related to decriminalization, medical cannabis legislation, state autonomy on marijuana laws and record expungement, outlining the current state and challenges.

It highlights the ongoing process of rescheduling as a fulfillment of Biden's pledge, with an announcement expected between now and the summer, suggesting a commitment to decriminalization and medical cannabis legislation.

However, the complexities of federal versus state jurisdiction and the legal intricacies of rescheduling versus descheduling cast a shadow over the straightforward implementation of these promises. The report raises concerns about the potential for the illegal market where enforcement becomes more challenging.

Furthermore, the report scrutinizes the promise of allowing states to set their marijuana laws, pointing out the contradiction that may arise from federal rescheduling without accompanying federal legalization and oversight.

This would, in theory, conflict with the Supremacy Clause if medical cannabis is rescheduled, challenging the autonomy of states.

Zuanic’s analysis indicates progress toward campaign promises, yet regulatory challenges complicate their full realization.

Investment Considerations

Investors are advised to consider not only growth potential but also profitability and debt leverage when evaluating cannabis stocks. The report suggests a cautious approach to trading amidst this news flow, given the wide variation in stock performance and valuations across the sector.

“We doubt the DOJ would announce a regulatory framework as soon as it receives the DEA memo. It will likely wait for the DEA comment and review period. We are doubtful the framework details will be released before the election (11/5),” Zuanic wrote.

Zuanic advised considering valuation multiples within the broader context of potential growth, profitability and debt leverage and emphasized a nuanced approach to stock evaluation in the sector.

“If the DOJ implies it will release the framework before the election, that would be bullish for stocks, but we doubt we will know this so early on. We do not see how a rescheduling or descheduling decision could be enacted before the election, and the same would apply to the repeal of 280E,” Zuanic concluded.

“Of course, we do not think this will stop the industry from taking a more aggressive stance on tax provisioning and payments.”

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