What’s going on with pot stocks? (June, 2024)

It was good news, right? So why are pot stocks going down?

On April 30th, the U.S. Drug Enforcement Administration revealed it would reclassify marijuana as a less dangerous drug. It is currently a Schedule 1 drug, on the same level as unambiguously harmful drugs such as heroin. The reclassification would equate it to Tylenol with codeine.

“Today, the Attorney General circulated a proposal to reclassify marijuana from Schedule I to Schedule III,” Justice Department director of public affairs Xochitl Hinojosa said in a statement. “Once published by the Federal Register, it will initiate a formal rulemaking process as prescribed by Congress in the Controlled Substances Act.”

Initially pot stocks responded with a spike, but then…nothing. Well less than nothing, actually. Most are down since the announcement. What gives?

Haywood analyst Neal Gilmer says there is an increasing lack of faith from investors than anything will get done in short order.

“As we enter the core summer months, the industry remains marred by uncertainty that has been reflected in the gradual sell off that has persisted basically since the announcement that the DEA has accepted the HHS recommendation to move cannabis to Schedule III from Schedule I,” the analyst noted. “Since the start of the 60-day public comment period, which completes July 22nd, there have been few positive headlines to give investors’ confidence that rescheduling will be completed prior to the November election. Most recently have been the headlines that opponents of reform are requesting the DEA to hold public hearings on the rescheduling, claiming the recommendation was flawed and overstated the medical benefits of cannabis. Last Thursday was the deadline to request a public hearing on the rescheduling and it remains to be seen if one will be scheduled. In the meantime, we are not expecting much in the way of tangible updates until after the July 22nd deadline. With respect to SAFER Banking, certain politicians continue to reiterate their intent to bring it to a vote, however investors have clearly put little faith in that unfolding given the inaction by lawmakers over the past four years.”

So are there any green shoots that investors can look forward to?

“Despite the uncertain messages at the Federal level, certain state level developments continue to provide positive progress, the most recent of which is Ohio,” Gilmer wrote. “Regulators there have signed off on 62 provisional dual licenses for dispensaries, cultivators and processors as of Friday, just two weeks after starting to accept applications. Following the grant of a provisional license, applicants must prove they have met the various requirements. Once an applicant has satisfied the requirements and an inspection has been performed, they will be able to obtain a certificate of operations to begin dual sales. Next door in Pennsylvania, bipartisan lawmakers announced earlier last week a legalization bill that would create a regulated cannabis market under the state Department of Agriculture. The lawmakers went on to claim later in the week that the votes are there to pass, stressing that the governor needs to work across the aisle to move the bill forward. Lastly Florida continues to march forward towards the November ballot measure on adult-use. According to Marijuana Moment, the Smart & Safe campaign has raised over $40 million already, more than any other marijuana ballot measure. This surpasses California Proposition 64, which previously held the record at $36.7M during the 2016 California adult-use vote.”

Ultimately, though, Gilmer concedes that state-level gains are not the “driving force” for pot stock performance, though he continues to see this progress as a positive.