Why Are Cannabis Stocks Heating Up?

Kristoffer Inton: It's been a tough time for cannabis stocks as growth has been slower than most have expected, as well as too much debt for some, leading to massive declines in share prices. But at the end of August, shares of U.S. multi-state operators rallied in the 40% to 50% range, while Canadian licensed producers mostly rallied in the 20% to 30% range.

The reason for the renewed optimum – news that the U.S. Department of Health and Human Services recommended to the Drug Enforcement Agency to reschedule cannabis to Schedule III from Schedule I. Cannabis, like heroin and ecstasy, are currently listed as a Schedule I drug, which means it is considered to have a high potential for abuse and no medical value. In comparison, Schedule III drugs are considered less dangerous with a lower potential for abuse and having some medical value. Lower scheduling could be enough to bring some important benefits to U.S. MSOs, including paying normal taxes, improved banking access and potential listing on a major U.S. stock exchange. The DEA now must conduct its own review before solely determining any final rescheduling. MSOs like Curaleaf and Green Thumb are the most likely to directly benefit from a rescheduling and both trade in 5-Star territory. Canadian LPs are less likely to benefit, given their lack of U.S. cannabis operations, though we think Tilray and Cronos offer attractive risk-adjusted upside.