On Wednesday, the U.S. Department of Health and Human Services (“HHS”) sent its recommendations to the Drug Enforcement Administration (“DEA”) that marijuana be reclassified as a lower-risk drug. This development will boost the budding cannabis business, which has forever operated under the cloud of legality and perception. Despite being legalized for recreational use in many states, marijuana’s federal classification alongside drugs such as heroin and LSD has been a hindrance.

The industry has been in free fall since it witnessed a sales surge during the pandemic. Perceptions about the industry have ensured that it is mostly an unbanked business, and trade between states is not common. With a federal reclassification and gradual change in perception, this could change, and the marijuana market could open up.

Currently, marijuana is part of Schedule I of the Controlled Substances Act. This new recommendation aims to shift it to Schedule III, defined as drugs with a moderate to low potential for physical and psychological dependence. Only the DEA can reschedule marijuana, and it remains to be seen whether it acts on the recommendations.

Regardless, prices of cannabis stocks jumped on Thursday, reacting to this bit of news. Canopy Growth Corporation CGC, one of the biggest players in the market, added more than a fourth of its value, skyrocketing 25.8%. CGC currently carries a Zacks Rank #3 (Hold). For the current year, its estimated earnings growth is 93.6%. For 2024, it is projected at 27.9%.

Canopy’s peers like Tilray Brands, Inc. TLRY and Cronos Group Inc. CRON, also carrying a Zacks Rank #3, saw sharp movement upward, rising 11.3% and 9.6%, respectively. For the current year, the estimated earnings growth for Tilray and Cronos are 14.3% and 62.5%, respectively.

This reclassification, which is currently a recommendation only, is almost certain to kickstart a boom for marijuana. How and whether at all it transpires, investors will keenly monitor.
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