Marijuana-company stocks rose for a fourth consecutive day Friday, notching their best week since March 2020 on optimism that a US Drug Enforcement Administration review will result in a lower risk rating for the drug.
The MJ PurePlay 100 Index closed 1.9% higher Friday, extending its weekly gain to 28%, its best stretch since March 2020. The Roundhill Cannabis ETF, ticker WEED, gained a record 42% this week.
Cresco Labs Inc. rose 14% Friday, while Columbia Care Inc. closed nearly 4% higher. Verano Holdings Corp. gained 6.7% and Curaleaf Holdings Inc. ticked up 2.7%.
A Wednesday recommendation from Assistant Secretary for Health Rachel Levine that cannabis be classified as a Schedule III drug under the controlled substances act lifted industry stocks. The gains continued when the DEA said that it would review its classification for cannabis.
The codification of marijuana as a Schedule I drug, the same category as heroin and LSD, has been a headwind for the industry since states started breaking ranks with the federal government to legalize its recreational use. Being in a lower risk category would ease some of the difficulty that cannabis companies have faced accessing financial services because of federal law.
The change would also lift some tax credit and deduction bans for marijuana businesses, Benjamin Salisbury, director of research at Height Capital Markets, said in a note.
“It also could spur more banks and financial institutions to offer traditional banking services to cannabis companies, reducing their long dependency on cash,” Salisbury said.
A Schedule III rating that would put cannabis in the same category as testosterone and ketamine may also make researching the drug easier and could lead to it being removed from the controlled-substance category in the future, he added.
Yet the most recent steps wouldn’t completely end the banking issues the cannabis industry is contending with. The SAFE Banking Act, which was reintroduced in Congress this year and would open up banking services to the legal cannabis industry, would likely still be necessary in some form, according to Salisbury.
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“Additional guidance would be needed to ensure federally insured banks do not violate federal anti-money laundering statute and other laws by engaging in transactions with the proceeds of federally illegal marijuana operations,” he said.
(Updates stock moves at market close.)