DEA Proposal to Reclassify Marijuana Sparks Industry Optimism and Potential Investment Boost

The Drug Enforcement Administration (DEA) is proposing to reclassify marijuana from a Schedule III narcotic, which includes substances like cocaine and fentanyl, to a Schedule I narcotic, which includes drugs such as ketamine, codeine, and steroids. While this move will still require a lengthy approval process and will not legalize marijuana in the US, it is being hailed as a significant step forward for the cannabis industry by CEOs of major firms such as Curaleaf and Trulieve. The proposed change has been long sought-after by the industry, and Curaleaf CEO Matt Darin referred to it as a “historic moment”. This move is expected to increase investment in research and development, as businesses will no longer be subject to Section 280E, a section of the Internal Revenue Service (IRS) tax code that restricts deductions and increases the effective tax rate for cannabis companies. This would enable firms to reinvest capital back into the business, making it more attractive to institutional investors and pharmaceutical companies, according to Darin. Additionally, Trulieve CEO Kim Rivers stated that the DEA’s decision signals progress towards further regulatory and policy changes in the industry, with the Food and Drug Administration (FDA) previously finding that marijuana is safer in several aspects compared to alcohol. The move could also lead to improved banking practices for the industry, as Trulieve’s Rivers believes it would normalise the industry’s banking operations, allowing for better access to loans and reducing the amount of cash on-hand that makes dispensaries a target for crime. However, Rivers acknowledged that the Safe and Fair Enforcement Banking Act (SAFER Banking Act), which would provide the industry with access to deposits, insurance, and other financial services, remains unpassed in Congress. The proposed DEA reclassification could also result in increased mergers and acquisitions activity within the sector, according to Darin, who added that the change would “open up the markets”. Both Curaleaf and Trulieve are set to release their financial results for the first quarter, with Curaleaf reporting after-market hours and Trulieve reporting prior to the market opening on Thursday. As more states permit recreational and medical cannabis use, shares in major cannabis firms Curaleaf and Trulieve have risen and fallen in recent weeks. The AdvisorShares Pure US Cannabis ETF, which tracks the performance of cannabis stocks, rose by around 25% following news of the proposed DEA reclassification but subsequently declined in subsequent trading sessions.