During President Joe Biden’s campaign, he promised to reschedule marijuana from Schedule I to Schedule III, a move that could significantly influence the stock market, potentially triggering a positive surge in stock rallies.
A comprehensive equity research report authored by Pablo Zuanic, a senior analyst of Zuanic & Associates, delves into this pivotal shift and its potential impact on the cannabis stock market.
Factors Shaping Market Impact
The report identifies several key factors that will determine the magnitude of this impact, including the method and timing of the announcement, the duration of the comment period, and the content of the DEA memo.
Zuanic raises concerns about the potential influence of pharmaceutical and alcohol lobbies during the comment period, and the varied responses from both liberal and conservative factions regarding rescheduling. A swift resolution before the election is deemed favorable for stock market performance.
Uncertainties And Regulatory Framework
The pending decision by the DEA could align with the conventional perspective of moving marijuana to Schedule III. However, uncertainties loom regarding the Justice Department’s final stance and regulatory framework.
Zuanic contemplates whether the DEA will opt for the ‘conventional wisdom’ approach, merely shifting marijuana to Schedule III, and delegating other aspects to the states. However, he expresses skepticism about this scenario, speculating that a more comprehensive regulatory framework consistent with other substances and drugs in Schedule III might be recommended. Any alternative route could present unwelcome challenges for the industry.
Fulfillment of Biden’s Campaign Promises
The report also delves into Biden’s campaign commitments related to decriminalization, medical cannabis legislation, state sovereignty in marijuana laws, and record expungement, outlining the existing status and impediments.
It highlights the ongoing rescheduling process as a step toward fulfilling Biden’s pledge, anticipating an announcement between now and the summer, indicating a commitment to decriminalization and medical cannabis legislation.
However, complexities emerge from the federal versus state jurisdictions and the legal intricacies of rescheduling versus descheduling, casting doubt on the seamless realization of these promises. The report also raises concerns about the potential growth of the illicit market, where enforcement becomes more challenging.
Investment Recommendations
Investors are cautioned to consider not only growth potential but also profitability and debt leverage when evaluating cannabis stocks. The report suggests a prudent approach to trading amidst this news flow, given the substantial variations in stock performance and valuations across the sector.
Zuanic advises a nuanced approach to stock evaluation, emphasizing the need to factor in valuation multiples within the broader context of potential growth, profitability, and debt leverage. He also highlights the importance of considering the implications of the election timeline on regulatory decisions.
