Why Are Cannabis Stocks up Today? Looser Federal Laws May Be the Answer

Key takeaways

• The DEA is reviewing its classification of cannabis
• It’s the most significant announcement for the cannabis industry in nearly a year
• Cannabis stocks soared at the announcement

Cannabis stocks were flying high this week after news that the feds are considering reclassifying the drug to a lower level. This is a step in the right direction for the sector’s growth, but the nascent industry is still volatile for investors looking to enter the industry. Here’s what we know.

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Why are cannabis stocks up this week?

Cannabis stocks surged earlier this week after the Drug Enforcement Agency (DEA) announced it was reviewing its drug classification. The move comes after the US. Department of Health urged the federal agency to loosen the rules around the illegal-in-some-states substance.

Right now, cannabis is classed as a Schedule I drug along with heroin and LSD. The Assistant Secretary for Health, Rachel Levine, wrote to the DEA recommending marijuana be reclassified as a Schedule III drug, which would put it in the same category as steroids, testosterone and ketamine.

The change is long-awaited since President Biden came to the White House. In October last year, Biden unveiled numerous announcements around the drug, including pardoning all prior federal offences of simple possession. The SAFE Banking Act, which would open up banking services to the cannabis industry, may also pass as soon as this year.

What was the market reaction?

A whole host of cannabis drug companies saw sizeable growth in their share prices at the announcement, with the two biggest gainers being Goodness Growth Holdings and Columbia Care Inc., skyrocketing 26% and 39%, respectively.

The MJ PurePlay 100 Index, which tracks marijuana stocks, climbed 13% at the news, the biggest gain since October 2022. Other stocks that performed well include Tilray Brands Inc., with 11% growth, Canopy Growth Corp., which added 13% and Verano Holdings Corp., which rose 17%.

The bottom line

It’s positive news that the DEA is reviewing its classification of cannabis, but there’s no absolute guarantee that the outcome will be positive. Stocks reacted as if the move was a done deal but could plunge back down at any whiff of bad news, so we’d recommend diversifying your options where possible (and using AI investing to help make the process more manageable).

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