Cannabis Stocks React To DEA Rescheduling: Canopy & Aurora Surge, Tilray, WM Tech Hold Steady

In a historic trading session on Tuesday, cannabis stocks soared following the DEA's reported decision to reclassify marijuana from Schedule I to Schedule III under the Controlled Substances Act.

This regulatory shift, which would align with a recommendation from the Department of Health and Human Services sparked investor interest

evidenced by gains in major cannabis stocks on the NASDAQ.

Canopy Growth Corporation CGC led the gains, skyrocketing by 78.8% to close at $14.88 per share amid a trading frenzy that pushed the volume to 79.25 million shares.

Aurora Cannabis ACB wasn't far behind, climbing 46% to close at $9.23 per share with a volume of 37.921 million shares. Tilray Brands Inc. TLRY also enjoyed an upswing, rising 39.5% to end the day at $2.47 per share with a volume of 147.306 million shares.

WM Technology, Inc. MAPS saw a moderate increase of 1.44%, closing at $1.06 per share, with trading volume reaching 4.428 million shares.

The sudden uptick in these stocks highlights the market's optimistic reaction to the DEA's policy change, but when placed in the context of the year's performance, the perspective shifts slightly.

A Rocky Road

Aurora Cannabis, for example, experienced a robust recovery from its earlier slump in January, climbing 43.96% from its low in April before the most recent jump of 46%. Similarly, Canopy Growth Corporation managed a striking rally of 162.31% in March, despite a slight dip in April, culminating in an extraordinary single-day surge of 78.8%.

These fluctuations underscore a pattern of high volatility, suggesting that while the upsurges are significant, they are part of broader, unstable trading patterns that have characterized these stocks throughout the year.

Conversely, stocks like Tilray and WM Technology, Inc. have also shown significant swings, with Tilray rising 42.77% in March only to fall again in April and MAPS experiencing a decline of 21.43% after a strong gain.

These movements indicate that while the DEA's recent policy change has indeed injected a dose of optimism into the market, the broader year's perspective reveals fluctuating valuations. 

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Stock Performance In The Last Quarter

In the third quarter, Aurora reported a modest rise in net revenue to CA$64.4 million ($68.7 million), up from CA$61.1 million in the same quarter last year, and growth in its medical marijuana segment, which saw a 16% increase to CA$45.1 million.

Tilray Brands showed a stronger performance with third-quarter net revenue jumping 30% year-over-year to $188.3 million with its adjusted gross profit improving by 17% to $51.6 million.

Conversely, Canopy Growth presented a mixed financial picture, noting an 81% increase in its “rest-of-world” cannabis revenue, which reached CA$10.5 million. Yet its core Canadian cannabis segment experienced a decline, with net revenue falling from CA$46.6 million in the prior year's quarter to CA$39 million. 

What Happens Next?

As the DEA proposes reclassifying cannabis from Schedule I to Schedule III, the Marijuana Policy Project noted the limited impact this change has on the criminalization of cannabis users under state laws and advocates for more robust state-level initiatives for comprehensive cannabis legalization and fair medical laws.

The U.S. Cannabis Council, through its executive director Edward Conklin, described the DEA's decision as a "tectonic shift" in drug policy, emphasizing the economic and social benefits expected from moving cannabis to Schedule III, including potentially ending the restrictive 280e tax penalty.

In a recent report, senior analyst Pablo Zuanic suggested the rescheduling of cannabis could focus primarily on medical cannabis, which could allow for more controlled and supported medical use under federal guidelines.

This would enable better research, development and medical application of cannabis, enhancing its legitimacy and accessibility as a therapeutic substance.

Who Wins With Rescheduling?

The rescheduling of cannabis carries implications for various stakeholders within the industry, including multistate operators, pharmaceutical companies and federal regulatory bodies like the FDA.

Removing Tax Rule 280E could increase profitability for U.S. cannabis businesses by lowering their effective tax rates, which have been notably high. This advantage is balanced by the introduction of potential FDA oversight and the entry of pharmaceutical companies into the market.

This transition could render cannabis federally legal under certain schedules, increasing regulatory requirements and altering the competitive landscape by enabling pharmaceutical entities to potentially dominate, especially in the medical cannabis segment.

The reduction of the 280E tax burden would provide financial relief but also bring the risk of enhanced regulation and operational challenges. Zuanic also points out that MSOs might see improvements in cash flow management and tax reductions. 

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