Pot stocks jump as U.S. DOJ moves to reclassify cannabis as a less dangerous drug (updated)

Green Thumb Industries

30/04/2024 20:59

(Adds analyst comment in paragraph 5, background in paragraph
4, updates shares)
    By Tanay Dhumal
       April 30 (Reuters) - Shares of cannabis companies surged
on Tuesday afternoon after the U.S. Department of Justice (DoJ)
moved to reclassify marijuana as a less dangerous drug.
    U.S.-listed shares of Cronos Group  CRON.O , Tilray Brands
 TLRY.O  and Canopy Growth  CGC.O  rose between 14.9% and 67.7%,
while ETF AdvisorShares Pure US Cannabis  MSOS.P  soared 24.8%.
    Canada-listed Green Thumb Industries  GTII.CD  and Trulieve
Cannabis  TRUL.CD  were also up 26.6% and 37.3%, respectively. 
    Cannabis firms are taxed under section 280E as a part of
Schedule I drug, which disallows them from deducting normal
business expenses from their profit, increasing tax burden for
the companies. Reclassifying to Schedule III would eliminate
this tax, helping towards their profitability.
        "This would result in meaningful cash benefits for
operators and we estimate a cash benefit upwards of $150 mln,"
Alliance Global Partners analyst Aaron Grey said in a note.
  
        The proposal, which, if finalized, could potentially be
the most significant shift in federal cannabis policy in 40
years, is being sent to the White House Office of Management and
Budget for review and to finalize the rule-making process,
sources told Reuters.
    The reclassification will not legalize marijuana outright
for recreational use.
    Shares of U.S.-listed marijuana companies had similarly
soared in 2019 after Canada legalized recreational marijuana
use, but the rally collapsed the following year as underwhelming
revenue numbers failed to justify their sky-high valuations.

 (Reporting by Tanay Dhumal in Bengaluru; Editing by Tasim Zahid
and Anil D'Silva)
 ((Tanay.Dhumal@thomsonreuters.com; Twitter: https://twitter.com/TanayDhumal;))