MSOS ETF Rally Hints at Bigger Gains Ahead, Zuanic Report Finds

LOS ANGELES – A recent report from equity research firm Zuanic & Associates outlines substantial financial gains for U.S. MSOs if federal regulators shift Cannabis to Schedule III status, with savings potentially exceeding hundreds of millions in back taxes alone.

Authored by Wall Street analyst Pablo Zuanic, the document, titled “US MSOs: The S3 Math Upside,” crunches numbers on the repeal of Internal Revenue Code Section 280E, a provision that bars operators from deducting ordinary business expenses, and maps out ripple effects across the industry.

At its core, the report shifts tax calculations from gross profits to profit before tax at the standard 21% corporate rate, a change that could free up cash flows for debt reduction and expansion. Drawing on the latest 12-month financials from major players, Zuanic applies two valuation lenses:

• a 15% annuity discount rate, and
• a 10x forward EBITDA multiple, benchmarked against current market caps.

Among the larger MSOs with market caps exceeding $500 million, Trulieve leads with a robust 36% EBITDA margin on $1.2 billion in trailing-12-month sales, generating $434 million in earnings that offset a hefty $616 million income tax debt [equivalent to 31% of its $1.6 billion valuation] while Curaleaf trails at 22% margins despite lower relative debt exposure of 18%. In contrast, smaller operators face steeper headwinds, as seen with Cannabist, where $87 million in tax liabilities eclipse its $28 million market cap by 308%, yielding just 8% margins on $350 million sales and highlighting acute balance-sheet strains that rescheduling could alleviate through 280E repeal. Overall, these disparities reveal how tax burdens amplify risks for undervalued firms, potentially catalyzing M&As among debt-laden players.

What’s interesting, these figures stem partly from Friday’s market rally, where the MSOS ETF climbed over 54% to $5.80 [yet still trails its February 2021 high above $50], suggesting room for further appreciation if rescheduling solidifies.

The math extends to forgiving accumulated 280E liabilities, tallied at September’s end across a dozen operators. Zuanic envisions IRS negotiations yielding payment plans or outright reductions, easing balance sheets strained by effective tax rates often surpassing 60%. Such relief, the report argues, would not only bolster liquidity but also sharpen competitive edges in a $44.3 billion market growing at an 11.5% compound annual rate through 2030, fueled by medical adoption and CBD demand.

Yet the document tempers enthusiasm with broader considerations. Rescheduling, while dismantling 280E, stops short of full descheduling or legalization, leaving interstate commerce and recreational access in legal limbo. Zuanic highlights a pending Supreme Court case, Canna Provisions et al. v. Garland, which challenges the Controlled Substances Act under the Commerce Clause and could dismantle federal prohibition outright if granted review, invoking precedents like Murphy v. NCAA from 2018. A favorable ruling there might accelerate uplistings to major exchanges and unlock institutional custody, but denial would cap gains at tax tweaks.

Beyond the spreadsheets, Zuanic stresses intangible shifts: diminished stigma could quiet state-level [and international] pushback, grease congressional wheels for banking reforms, and cut borrowing costs sector-wide. More mergers might follow, alongside federally backed research into therapeutic uses, advantages that service providers in tech and finance stand to share. These dynamics, the analyst posits, explain why proxy trackers like $MSOS have underperformed direct listings on NASDAQ, a gap rescheduling might close.

Timing remains the wildcard. With President Donald Trump signaling openness to reform [amid reports of GOP leaders eyeing executive action] the DEA’s final rule could land early next year, though details on medical classifications and pardon mechanics await clarity. Zuanic’s analysis builds on prior dispatches from August and late November, which flagged hemp derivative bans as interim boosts for regulated sales.

For operators navigating this stretch, the report serves as a sober ledger: rescheduling promises arithmetic certainty in taxes, but the real equation balances against regulatory delays and market volatility. Improved cash flows could finally align Cannabis with traditional sectors, drawing advisors to portfolios long sidelined by compliance fears. In a field where just 27% of operators report profitability, leaving the majority at a loss or break-even, such alignment could redefine viability for the sector at large.