Eight major impacts rescheduling of marijuana could have on publicly traded cannabis companies
This guest op-ed was submitted by Sundie Seefried, Founder and CEO, Safe Harbor Financial
Drawing attention to how impactful legislative reform could be for cannabis businesses, cannabis stocks jumped as much as 20% or more on the leaked news that the Health and Human Services (HHS) recommended that the Drug Enforcement Administration (DEA) reschedule marijuana from a Schedule I drug (such as heroin) to a Schedule III drug (such as testosterone).
Federal action on marijuana regulations has stirred cannabis investors, bringing newfound excitement to an industry that for years has been focused on hype that it may finally be ready for primetime. As the industry waits for the DEA’s response to the HHS recommendation, there are eight major catalysts motivating investors that their public investments are finally going to pay off including:
- 280E Taxation Elimination: The 280E tax is very onerous, requiring cannabis businesses to pay significantly higher taxes than a traditional business. In fact, even cannabis businesses with negative incomes after all expenses are often are required to pay an income tax.
- Growth Opportunities: The rescheduling of marijuana could open up new opportunities for growth for cannabis companies. For example, companies could expand into new markets and develop new products and services. This could lead to increased M&A activity as companies look to acquire other businesses to expand their reach or product offerings.
- Listing on Major Stock Exchanges: Currently, most publicly traded cannabis companies are listed on the Canadian Securities Exchange (CSE). The CSE is a smaller and less liquid exchange than the major U.S. exchanges, such as the New York Stock Exchange (NYSE) and the Nasdaq. Rescheduling could increase plant touching cannabis companies to list their shares on major U.S. exchanges, increasing access to a wider pool of investors and make it easier for them to raise capital.
- Stock Custody: Broker-Dealers have been reluctant to engage in custody of cannabis business stock, and many that do provide that service, do so at a high expense to the customer. Greater acceptance at the investment banking level will create additional analyst coverage, further educating and normalizing the cannabis industry.
- Investor Acceptance and Confidence: This potential acceptance by public markets remains the greatest impact on stock performance; equating to investor comfort and certainty. Many investors have avoided cannabis stocks simply due to the uncertainty of how the federal agencies would or could move against the market; reducing investor value and creating uncertainty. A move to schedule III should definitely build investor confidence and while legislation and regulation moves are incremental, it is moving in a positive direction at the federal level. Investor confidence in the industry resulting in increased stock volume movement should have a positive impact on stock price.
- Stabilizing Regulatory Environment: Investors have been on a roller coaster ride because of a lack of position at the federal level regarding the industry. Every time legislation presented, at the Safe Banking Act level, interest in cannabis stocks increased and every time legislation failed, so failing investor interest; making cannabis stocks risky. This solid position of moving to a schedule III should allow for investors to truly evaluate the attractiveness of a cannabis stock based upon corporate performance verses regulatory uncertainty; again, a positive impact on cannabis stock.
- Increased Profitability: Cannabis companies would realize the benefit of taking normal business deductions. Removal of this ominous 280E burden will increase corporate profits and increased profits should promote corporate growth; equating to greater shareholder value and presumably a positive impact on stock price.
- Additional rescheduling or De-scheduling: A positive move forward like rescheduling could indicate future incremental moves at the federal level. Schedule III drugs are considered medicinal under proper medical supervision. This does not necessarily address the recreational use of marijuana and that is a reality for the cannabis industry. Scheduled drugs aren’t considered recreational at any level. If the industry is going to be fully accepted and treated as alcohol, complete de-scheduling is required due to the recreational factor. Rescheduling, additional research opportunities, an increasing acceptance of cannabis at both medicinal and recreational levels all seem to point in a positive direction and increase the likelihood of further federal action that will positively impact any stock performance.
This article was submitted by a guest contributor to GreenState. The statements within do not necessarily reflect the opinions of GreenState, Hearst, or its constituents. The author is solely responsible for the content.
