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Cannabis stocks shot to record gains Thursday after President Joe Biden formally sought to review how marijuana is classified under federal law, a change that pot producers in the U.S. and Canada have long sought after months of stalled federal reform that soured enthusiasm in the industry.
The moves buoyed the cannabis sector after steep losses in 2022, even as more states launch adult-use and medical programs for cannabis. But in Canada, producers continue to lose money and face stiff competition.
The announcement also follows Biden’s shifting stance over the years on pot — from opposing legalization to eventually supporting some degree of decriminalization and medical cannabis consumption. And it comes as Democrats try to whip up support for this year’s midterm elections and as many Republican lawmakers remain wary of legalization.
But some analysts expressed skepticism, and appeared to be waiting for more specifics from the announcement and bolder reforms.
“Marijuana-related stocks such as Tilray, (Sundial) and Canopy Growth soared on the news as the broader market fell,” Capital Alpha Partners analyst Ian Katz wrote in a note Thursday. “But if investors were betting that Biden’s action will lead to legalization of marijuana, they will likely be disappointed.”
Biden on Thursday said he would ask Attorney General Merrick Garland and Xavier Becerra, the U.S. Department of Health and Human Services secretary, “to initiate the process of reviewing how marijuana is scheduled under federal law.” Cannabis is currently regulated by the Drug Enforcement Administration and listed as a Schedule 1 drug, in the same federal bucket as heroin.
Biden also said he would take executive action to pardon “all prior federal offenses of simple marijuana possession,” and he called on state governors to pardon simple marijuana offenses at the state level.
“As I’ve said before, no one should be in jail just for using or possessing marijuana,” Biden said on Twitter. “Today, I’m taking steps to end our failed approach.”
“There are thousands of people who were previously convicted of simple possession who may be denied employment, housing, or educational opportunities as a result,” he continued.
Although presidential pardons restore various rights lost as a result of the pardoned offense, it does not erase or expunge the conviction records. The Wall Street Journal said the pardons would apply to 6,500 people convicted of simple-possession federal offenses over roughly the past two decades, and thousands in Washington, D.C.
Most U.S. states have legalized cannabis, either for medicinal or recreational use. States such as New York have moved to award cannabis licenses to people who have been imprisoned for cannabis offenses as a way to correct the impact of the War on Drugs on people of color.
Also Read: New York’s new cannabis chief vows that half of legal licenses will go to social justice efforts
Exchange-traded funds focused on the marijuana industry reflected record gains after stocks reacted to the news. The AdvisorShares Pure US Cannabis ETF
MSOS,
rose 34%; the ETF, which focuses on the U.S. pot industry, had never previously gained more than 9.5% in a single session, according to FactSet. The ETFMG Alternative Harvest ETF
MJ,
increased 19.6%, topping its previous record for daily percentage gain of 14.9%.
“This is huge news — the biggest step under the Biden administration so far on federal cannabis reform,” U.S. cannabis company Cresco Labs
CRLBF,
tweeted as its shares vaulted 24.4%, the stock’s best day since late 2018.
Curaleaf Holdings Inc.
CURLF,
the largest U.S. multistate operator, or MSO, jumped 33.1%, while Trulieve Cannabis Corp.
TCNNF,
moved up by 36%, both record daily moves. Canadian companies also saw big gains: Tilray Brands Inc.
TLRY,
rallied 30.9%, Canopy Growth Corp.
CGC,
rose 22.2%, Cronos Group Inc.
CRON,
rose 13.5% and Aurora Cannabis Inc.
ACB,
rose 7.3%.
The moonshot gains come during a year in which cannabis decriminalization efforts from House and Senate lawmakers have so far failed to become law in Washington.
Meanwhile, onerous taxes and weed regulations in legal states have crimped profits and constrained access to traditional banking services, leaving much of the industry running on cash. The SAFE Banking Act, a measure that would open up financial services to cannabis companies, has passed the House several times, but it’s never come to a vote in the Senate.
Some Canadian pot producers sell hemp-derived CBD products in the U.S. But even with Biden’s announcement, the legal pathway for those producers into the U.S. market for THC products is still unclear.
Among other cross-border investments intended to weigh anchor for full U.S. cannabis legalization, Canopy Growth has an arrangement in place to buy U.S. peer Acreage Holdings Inc.
ACRHF,
whenever federal laws allow. Tilray, meanwhile, has an investment in California-based cannabis retailer MedMen Enterprise Inc.
MMEN,
which has tried to turn itself around after losses and executive turnover.
Those investments are intended to give the Canadian producers a foothold in the U.S. for whenever cannabis goes fully legal federally. But they’d be competing against bigger U.S. rivals, in an industry where brand recognition is still minimal.
A Canopy representative, in a statement, said Biden’s announcement “set into motion the actions needed to heal the harms of the past and chart a course for responsible, legal cannabis markets in the future.” The representative did not directly respond to a question about whether the announcement was enough for the company to fully enter the U.S. Tilray did not immediately respond to a request for comment.
Mitch Baruchowitz, founder and managing partner of Merida Capital Holdings, told MarketWatch that Biden’s actions were a reminder that cannabis was still on a broader trajectory toward legalization. But he said the actions outlined Thursday had too many echoes of Biden’s previous remarks on cannabis.
“It still shows his reticence to do anything bold on cannabis,” he said.
Jigar Patel, the chief executive of NorCal, a cannabis producer and retail based in California, said in a statement that Biden’s executive move was a good first step. But he said the actions could have gone further, and called for the restoration of less restrictive Obama-era guidance on federal enforcement, along with other protections for veterans and other medical marijuana users, as well as recreational customers in legal states.
“Frankly, it is beyond disappointing that President Biden has not done more to protect some of the most vulnerable veterans, patients, students and disenfranchised Americans, who have been unfairly treated and targeted for decades,” he said.
Baruchowitz also said the announcement hardly presented relief to the Canadian producers, as they look to offset struggles at home.
“How many of them have money now to even go into the U.S.?” he said. “The U.S. is just another market for them to lose another couple hundred million dollars a year.”
