Cannabis Stocks Surge Following Biden’s Reclassification Announcement

NEW YORK- At 1 p.m. on May 16, Biden shared a video on X, declaring the U.S. Department of Justice’s decision to reclassify cannabis. This announcement led to a swift increase in cannabis-related stocks, reflecting growing market excitement.

Forbes reported that Canopy Growth Corp. shares closed at approximately $11, marking an over 11% increase to a one-month high. Aurora Cannabis, another Canadian producer, saw its stock rise nearly 7%, closing at almost $8 per share. Green Thumb Industries’ stock increased by nearly 3%, reaching just over $13.

Trulieve Cannabis Corp shares rose nearly 6% to just under $13 per share, while Tilray Brands’ shares increased by roughly 2.5% to over $2 per share. Cronos Group’s stock also saw a rise of over 4%, closing at more than $3 per share.

Despite these gains, many cannabis stocks remain significantly below their five-year highs. For instance, Curaleaf is down nearly 66% from its February 2021 peak, and Tilray has dropped nearly 97% from its high in the same month, as reported by Reuters.

A 60-day comment period will follow the proposal’s publication in the Federal Register, allowing for public input. The reclassification process, including this period, can be lengthy and may take up to a year to complete.

Tax Implications of Schedule III Classification

The reclassification to Schedule III has potential tax implications, particularly concerning Section 280E of the tax code. This section currently prohibits businesses involved in Schedule I and II substances from deducting expenses. Once cannabis is reclassified to Schedule III, these businesses would no longer be subject to Section 280E, allowing them to deduct expenses like other legal businesses.

Legal experts from firms like Duane Morris LLP and Kilpatrick Townsend & Stockton LLP have provided insights into the anticipated changes. They note that while reclassification may take over a year to implement, it will not immediately eliminate existing state cannabis markets, which have historically operated in a complex regulatory environment.

The reclassification of cannabis has sparked a significant response in the stock market and among industry stakeholders. While the immediate gains are notable, the long-term impact on the cannabis industry will depend on further legislative actions and regulatory adjustments.