The release of documents that support a recommendation by the U.S. Department of Health and Human Services to lower the classification of cannabis under federal law to Schedule III from Schedule I ignited a rally in cannabis stocks on Tuesday.
Ayr Wellness Inc. AYRWF, +20.73% rallied by 20.1%, Curaleaf Holdings Inc. CURLF, +3.76% was up by 4%, Trulieve Cannabis Corp. TCNNF, +8.66% jumped 9%, Green Thumb Industries Inc. GTBIF, +2.39% rose 2.7%, Cresco Labs Inc. CRLBF, +7.67% shot up by 8.3% and Verano Holdings Corp. VRNOF, +0.73% was up by 1%.
TerrAscend Corp. TSNDF, +1.02% was up by 1% and the AdvisorShares Pure U.S. Cannabis exchange-traded fund MSOS climbed by 3.5%.
Canadian pot stocks also rose, with Tilray Brands Inc. TLRY, +8.56% up by 8%, Canopy Growth Corp. CGC, +6.86% up by 7.1% and Cronos Group Inc. CRON, +3.02% ahead by 3.3%.
Reports surfaced Friday that Texas lawyer Matthew Zorn, who had sued the HHS to release details of its report on cannabis, had obtained the 250-page document and published it on his blog.
In August, HHS recommended a Schedule III classification for cannabis to the Drug Enforcement Administration, which is still reviewing the proposal. The details of the recommendation had not been publicly disclosed until now.
“Based on the totality of the available data … we conclude that there exists some credible scientific support for the use of marijuana in at least one of the indications for which there is widespread current experience with its medical use in the U.S.,” the report said. “The analysis and conclusions on the available data are not meant to imply that the safety and efficacy have been established for marijuana that would support FDA approval of marijuana for any particular indication. However, the available data do provide some level of substantiation to support the way marijuana is evidently being used in clinical practice.”
Medical cannabis has been used to treat conditions including glaucoma and nausea caused by chemotherapy. CBD, a nonpsychoactive chemical derived from cannabis and hemp, has also been used in Epidiolex, a drug approved by the Food and Drug Administration for the treatment of two forms of epilepsy.
In a letter released last month, the DEA confirmed it is reviewing the HHS recommendation and that it has ultimate authority over drug classification. Internally, there are conflicts within the DEA between traditional drug fighters and those that are considering the medical attributes of cannabis, according to a New York Times report.
Members of the cannabis industry praised the release of the HHS document. If cannabis is rescheduled, it could help businesses in the cannabis industry avoid the higher taxes they currently pay under the 280E tax law passed during the drug wars of the 1980s, industry members have said.
“It is a surreal feeling to finally read an official document from the U.S. government that confirms what humanity has known for centuries, namely that cannabis has medicinal benefits and should be treated as such,” Brady Cobb, chief executive of Sunburn Cannabis and an industry lobbyist, said in an email to MarketWatch.
Emily Paxhia, managing partner at Poseidon Investment Management, said seeing the HHS recommendation “is a crystallizing moment where one can witness the hard work and conviction of this industry to evangelize cannabis and its potential healing properties coming to fruition.”
Cannabis stocks are “clearly spring-loaded” and ready to respond in volume and price to any change to cannabis classification, she said.
Under federal law, a Schedule I drug is defined as one having no medicinal use. The classification includes heroin and LSD. The Schedule III definition allows for regulated medical use of a controlled substance.
The rescheduling of cannabis would be a historic move — coming more than 50 years after the Schedule I designation — that could open up cannabis to interstate trade as well as remove the 280E tax burden that prevents legal-cannabis companies from writing off normal business expenses, experts said.
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