What happened
Shares of marijuana stocks including Canopy Growth (CGC 1.43%), GrowGeneration (GRWG 1.04%), and Cresco Labs (CRLBF 0.47%) all tacked on strong gains in Thursday morning trading, rising 22.9%, 13.3%, and 10.5%, respectively, through 10:40 a.m. ET.
And investors have the U.S. Department of Health and Human Services (HHS) to thank for it.
NASDAQ: CGC
Key Data Points
So what
Yesterday, HHS announced that it will officially recommend that the U.S. Drug Enforcement Agency (DEA) downgrade marijuana from a Schedule I controlled substance to just a Schedule III controlled substance -- an event investors have anticipated for nearly a year, after President Joe Biden suggested such a move last October.
Commenting on the news yesterday, weed-news source Marijuana Moment observed that a shift in schedules would imply two things: First, that the federal government no longer considers marijuana a drug with "high abuse potential." Second, that the federal government does acknowledge that marijuana use may have medical value.
And if you think the combination of those two opinions at the highest level of government might have an impact on marijuana sales, you're probably right (and incidentally, you're among the majority of marijuana investors, too).
Now what
That being said, there are caveats. For one thing, a Schedule III controlled substance is still a controlled substance. This move falls short of the all-encompassing marijuana legalization that investors have been hoping for. For another thing, while HHS has recommended downgrading marijuana from Schedule I to Schedule III, the DEA is not obligated to take this advice -- so the net effect of this recommendation could end up being nothing.
That's not the likely outcome, however.
As one more step in a years-long trend toward relaxed regulation of cannabis, the more likely outcome is that HHS's recommendation -- especially if acted upon by DEA -- will give ammunition to legalization proponents in Congress. This could advance legislation toward marijuana banking reform (lowering the cost of doing business for companies already doing business in states that have legalized marijuana). It could also advance legislation for full-scale legalization at the federal level.
That would still leave the question of whether marijuana companies can earn a profit selling the stuff, of course, even if it does become entirely legal to do so. In Canada, where marijuana is legal, Canopy Growth still hasn't figured out this trick. Neither have competitors such as Aurora Cannabis or Tilray Brands. So while this week's HHS move is certainly good news for marijuana investors, it's not in and of itself enough to turn marijuana companies profitable -- or assure investors that they'll be able to profit from buying their stocks.
