Cannabis stocks jumped after reports Biden will re-classify the drug — but is now the right time?
Cannabis stocks jumped in late April after the Biden Administration announced its intention to reclassify cannabis as a less dangerous drug.
This change would remove marijuana from the same category of drugs as heroin and crack cocaine, and instead, put it alongside things like codeine and testosterone.
The news caused a few price spikes in the cannabis market. Most notably, the AdvisorShares Pure US Cannabis ETF (an exchange-traded fund that tracks a number of American growers), jumped 25% after the announcement.
Overall, this change is great news for cannabis enthusiasts across the United States. However, this unexpected bump in stock prices doesn’t change the fact that investing in cannabis is just as volatile as ever.
Not to mention that this change isn’t written in stone yet. First, the White House will need to review the proposal, and then the public will get to weigh in on the potential change. And if Donald Trump wins the upcoming election, he may very well rescind the change before it can happen.
Navigating cannabis stocks
If the reclassification does go through, this will signal a level of legitimacy that the cannabis industry has yet to secure in the U.S., similar to how the Canadian market changed almost overnight, post-decriminalization and eventual legalization.
And yet, this won’t fix the other issues that exist within the cannabis market, which make it relatively unstable and difficult to trust as an investment.
As long as cannabis remains illegal at the federal level, it will continue to cause issues for growers. Things like the inability to trade over state lines, and the challenges growers face getting banks to act as custodians for their U.S. market shares haven’t gone away.
Stocks may have rallied in 2024, but historically, they’ve been a poor choice for long-term investors. Case in point: the AdvisorShares Pure US Cannabis ETF (MSOS is down a whopping 81% since its inception in 2020.
Here are a few things to consider before you make any decisions.
