Cannabis stocks drop sharply as DEA sets drug-rescheduling hearing after November election

By Steve Gelsi

DEA announces Dec. 2 public meeting on a proposal to move cannabis to less restrictive Schedule III legal classification

Cannabis stocks fell hard Tuesday after the Drug Enforcement Administration scheduled a hearing on its proposal to change the classification of cannabis to the less restrictive Schedule III for Dec. 2, after the presidential election, according to an announcement late Monday.

The DEA has not issued a timeline for its process to potentially change the classification of cannabis, which has been a Schedule I drug since the Controlled Substances Act went into effect in 1970, but some in the cannabis industry had hoped for a final decision before the U.S. election.

The DEA's move "puts greater election risk" around rescheduling if cannabis is not reclassified before the next administration takes over in January, Aaron Grey, an analyst at Alliance Global Partners, said Tuesday.

The AdvisorShares Pure U.S. Cannabis exchange-traded fund MSOS fell 10.3% Tuesday at midday, while the Amplify Alternative Harvest ETF MJ moved down by 6.3%.

Among individual stocks, Curaleaf Holdings Inc. (CURLF) dropped 9.6%, Green Thumb Industries Inc. (GTBIF) moved lower by 8.5%, Cresco Labs Inc. (CRLBF) fell 12.6%, Trulieve Cannabis Corp. (TCNNF) lost 7.2% and Verano Holdings Corp. (VRNOF) declined 13%.

Tilray Brands Inc. (TLRY) fell 5.1%, Canopy Growth Corp. (CGC) moved lower by 10.5%, OrganiGram Holdings (OGI) fell 7.3% and Cronos Group Inc. (CRON) dropped 3.9%.

TerrAscend Corp. (TSNDF) fell 11.9% and Ascend Wellness Holdings Inc. (AAWH) dropped 12.3%. Ayr Wellness Inc. (AYRWF) subtracted 13.8%.

Democratic presidential nominee Kamala Harris has voiced support for moving cannabis to Schedule III, which would put it in the same category as anabolic steroids and ketamine. Other Schedule I drugs include heroin and LSD.

Republican nominee Donald Trump has signaled some potential wiggle room on cannabis, although most of his fellow Republicans, including Florida Gov. Ron DeSantis, continue to oppose relaxation of cannabis laws.

"While the rescheduling may not occur ahead of the election, [Vice President] Harris winning the presidential election increases the chances of a final rule being completed in a timely manner," Grey said, adding, "Former President Trump winning the election could pose some risk to rescheduling," depending on who he would appoint as attorney general.

"The DEA hates weed," Green Thumb Industries Chief Executive Ben Kovler said in a post on X Tuesday. The DEA is against cannabis, he said, because "it threatens their job and the DEA budget" if it's rescheduled.

The DEA's rescheduling process has been slower than expected, TD Cowen Analyst Jaret Seiberg said, and it might not wrap up until next spring or summer.

"We believe the DEA announcement suggests [President Joe] Biden, now that he is no longer running for a second term, wants to punt the ultimate decision to his successor," Seiberg said in a note Tuesday. "This reinforces our view that Biden has never been a strong believer in legalization."

The DEA received 43,000 comments on its proposal, which was initially made on May 21 with a comment period that closed in late July.

The DEA said the comments included requests to hold a public hearing.

DEA Administrator Anne Milgram said she would name a presiding officer and determine who will participate in the hearing, which is scheduled to take place in Arlington, Va., on Dec. 2 at 9 a.m. Eastern time.

The meeting may be moved to a different location and may be continued from day to day or recessed to a later date without notice, the agency said.

Moving cannabis to Schedule III would allow cannabis companies to take standard business expense tax deductions, potentially saving them millions of dollars.

Also read: Cannabis stocks post sharp gains as Trump says he's starting to 'agree more' about reforms

-Steve Gelsi

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08-27-24 1243ET

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