Joe Biden committed to taking specific actions related to cannabis in his 2020 presidential campaign. His second year in office is nearly over. And the president has now at least partially delivered on his cannabis campaign promises.
On Thursday, President Biden announced pardons for all individuals with prior federal convictions for simple possession of marijuana. He urged governors to follow his lead by issuing pardons for similar state offenses. Biden also directed Attorney General Merrick Garland and Secretary of Health and Human Services (HHS) Xavier Becerra to review how marijuana is scheduled under the Controlled Substances Act.
Advocates of cannabis reform cheered this news. But should you buy pot stocks after Biden's big marijuana moves?
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Reading the cannabis leaves
The presidential pardons will help thousands of individuals with previous federal convictions for marijuana possession. However, they won't have a real impact on the U.S. cannabis industry. On the other hand, President Biden's direction to Garland and Becerra could ultimately prove to be a huge step forward for the industry.
Right now, marijuana is classified as a Schedule I drug under the Controlled Substances Act. This means that it has been determined to have no currently accepted medical use and has a high potential for abuse.
Some investors could be hoping that federal marijuana legalization will be on the way as a result of Biden's move. That's not going to happen. Cannabis won't be declared legal across the U.S.
It's possible, though, that marijuana could be removed altogether from the list of drugs scheduled under the Controlled Substances Act. This would decriminalize marijuana at the federal level, while individual state laws pertaining to cannabis would remain in effect. And that could open the door for Canadian companies such as Canopy Growth (CGC -3.01%) and Tilray Brands (TLRY -4.89%) to enter the U.S. cannabis market.
However, there's no guarantee whatsoever that marijuana will be removed from the drug schedules. A more likely scenario is that it's instead rescheduled to a less serious classification.
Importantly, Biden didn't push for marijuana to be excluded from drug scheduling altogether last week. Reading between the lines of the president's public statement seems to indicate that he's most concerned that more dangerous drugs such as fentanyl and methamphetamine are classified at less severe schedules than marijuana is.
Beyond the initial high hopes
Canopy Growth and Tilray stocks soared on Thursday after President Biden's announcement. But those gains largely evaporated on Friday as investors fully digested the impact of his moves.
The odds still appear to be stacked against Canadian companies being allowed to enter the U.S. cannabis market and retain their listings on major U.S. stock exchanges anytime soon. It's possible this could happen, but it doesn't seem probable at this point.
The question posed earlier, though, wasn't whether or not you should buy Canadian pot stocks. Leading U.S. cannabis stocks such as Cresco Labs (CRLBF -5.34%) didn't lose much steam on Friday after skyrocketing on Thursday. Trulieve Cannabis (TCNNF -6.26%) even picked up momentum.
Biden's executive actions won't necessarily help Trulieve and other U.S. multi-state operators. However, his pardons and directive related to the potential rescheduling of marijuana appear to be causing investors to look at U.S. cannabis stocks with fresh eyes.
No simple answer
So should you buy pot stocks after Biden's marijuana moves? There's no simple answer to this question.
Many investors prefer to avoid "sin stocks" altogether. Others don't have a personal problem with investing in marijuana stocks per se, but their risk tolerances keep them away. The president's actions don't change anything for either of these groups of investors.
Realistically, Biden's moves probably won't dramatically impact the prospects for U.S. cannabis companies. But the U.S. medical and recreational marijuana markets should continue to grow significantly over the next several years. Several of the current leaders, including Cresco Labs and Trulieve, could deliver strong revenue and earnings growth as a result. Aggressive investors willing to take on higher risk might want to consider buying these top U.S. pot stocks.
