Cannabis Stocks Surge as US Legalization Momentum Builds

Cannabis stocks surge as the US moves closer to federal legalization, with companies like Canopy Growth and Innovative Industrial Properties seeing significant growth. The DEA is expected to reschedule marijuana from Schedule I to Schedule III, paving the way for medicinal marijuana acceptance in the US.

Trim Correspondents
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Cannabis Stocks Surge as US Legalization Momentum Builds

Cannabis Stocks Surge as US Legalization Momentum Builds

Undervalued cannabis stocks are experiencing a significant surge as the United States moves closer to legalizing marijuana at the federal level. Canopy Growth, a prominent player in the industry, has seen its stock price skyrocket from $2.77 to $14.92 in recent weeks. Other cannabis companies, such as Innovative Industrial Properties, AFC Gamma, NewLake Capital Partners, ETFMG Alternative Harvest ETF, and Advisor Shares Pure US Cannabis ETF, are also showing strong potential for growth.

Why this matters: The potential legalization of marijuana at the federal level could have far-reaching implications for the economy, public health, and law enforcement, and could pave the way for a multi-billion-dollar industry. As the US moves closer to legalization, it could also set a precedent for other countries to follow suit, leading to a global shift in cannabis policy.

The surge in cannabis stock prices comes amid reports that the Drug Enforcement Administration (DEA) is expected to agree with the recommendation from the Department of Health and Human Services (HHS) to reschedule marijuana from Schedule I to Schedule III under the Controlled Substances Act. This potential rescheduling has gained significant attention and could pave the way for the acceptance of medicinal marijuana in the US, a market where margins are higher compared to recreational use.

Innovative Industrial Properties (IIPR), a leading provider of real estate capital for the medical-use cannabis industry, recently announced strong first-quarter results for 2024. The company executed new leases at four properties, representing $69 million of invested capital, and completed construction on three fully leased properties totaling 732,000 square feet. IIPR also strategically divested its Los Angeles property, with a combined consideration exceeding the carrying value of the property.

During the earnings call, Paul Smithers, President and CEO of IIPR, discussed the company's thoughts on the rescheduling process, pending federal legislation, and state-level dynamics. "We're really pleased with our capital position, especially in light of the macroeconomic environment impacting real estate companies and the cannabis industry as a general matter," said Alan Gold, Executive Chairman of IIPR.

The regulated cannabis industry in the US saw strong growth in sales across the country in 2023, despite subdued overall sales growth due to price compression. However, the outlook for the industry remains robust, with MJ Business projecting overall US regulated sales to grow from $32 billion in 2024 to $58 billion by 2030. "The outlook for overall growth of the regulated cannabis industry remains robust... we are seeing some relief on those pricing pressures, which gives us more optimism for 2024 and beyond," noted Smithers.

The Congressional Research Service (CRS) has published a report discussing the potential impact of the upcoming cannabis rescheduling. The report highlights the continued schism between state and federal laws regarding cannabis regulation and outlines several routes Congress could take to address policy considerations for state and federal legislators. These include addressing marijuana's designation under the CSA, financial services for marijuana businesses, federal tax issues, oversight of federal law enforcement, and states' implementation of marijuana laws.

US Congressman and long-time cannabis advocate Earl Blumenauer stated that "Legalization is now inevitable" and the Biden administration "is moving in the right direction." The DEA proposed to move marijuana from Schedule I to Schedule III under the CSA in April 2024, and news broke on April 30 that the DEA would support recommendations to reschedule cannabis.

As the momentum for US cannabis legalization continues to build, investors are closely watching the developments in the industry. The potential rescheduling of marijuana could open up significant opportunities for cannabis companies and drive further growth in the sector. With undervalued stocks surging and the outlook for the regulated cannabis industry remaining robust, the coming months and years could prove to be a transformative period for the cannabis market in the United States.

Key Takeaways

  • Cannabis stocks surge as US moves closer to federal legalization.
  • DEA expected to reschedule marijuana from Schedule I to Schedule III.
  • Innovative Industrial Properties reports strong Q1 2024 results.
  • US regulated cannabis sales projected to grow from $32B to $58B by 2030.
  • Legalization momentum builds, with Congressman Blumenauer saying it's "inevitable".