Marijuana will be classified as a softer drug in the United States. And the stock market is the first to react and celebrate the historic turning point. Shares of Tilray, an industry giant, jumped 39%, while those of Canopy Growth soared 79%. The cannabis industry has been hoping for a turning point for years and now, with the elections around the corner, it seems closer. The Department of Justice (after the intervention of the Department of Health and Human Services at the request of President Biden) recommended changing the classification of marijuana from Schedule I (a highly addictive substance without medicinal use) to Schedule III (more similar to Tylenol with codeine, i.e. with moderate to low potential for physical and psychological dependence).
For over fifty years, marijuana in the United States has been classified in the same category as heroin, methamphetamines and LSD. For recreational use and ages 21 and over, it is legal in 24 states, two territories and the District of Columbia. Therapeutic use is legal in 38 states. The new measure, whose bureaucratic process will still be long, will not completely decriminalize marijuana at a federal level, but it could expand access to the drug for medicinal uses, allow more research and strengthen the sector industry.
We are talking about a business worth around 30 billion dollars (27.59 billion euros) per year and the multi-billion dollar industry is already seeing positive implications and a new development perspective. First, new rules may mean tax breaks, which are not available to companies dealing with Schedule I or Schedule II substances, likely leading to lower prices and more hiring. With the new classification, cannabis companies could have access to tax credits and deductions for business expenses (rent, payroll). This would translate into $3.5 billion of liquidity in the market, reducing the overall cost of capital and therefore strengthening investments and mergers and acquisitions in the sector. Furthermore, paying less taxes would, say cannabis companies, allow them to compete against illegal competition. A loosening of the position on marijuana at the federal level would then allow the main stock exchanges to list companies that market cannabis and therefore also attract foreign companies in the sector.
And when talking about economic impact, Colorado comes to mind. Ten years ago marijuana for recreational use was legalized here. Consequences? Since 2014 there have been 40 thousand jobs, over 15 billion dollars in turnover and 2.6 billion in taxes in state coffers, invested in public education, transport and prevention policies. And Colorado was then followed by dozens of states. But marijuana remained illegal at the federal level, resulting in a legislative short circuit. Today's move by the Department of Justice is therefore a first step towards standardization between state and federal laws. And the legislative “deal” means access to national banking services, less difficulty in interstate transportation, tax deductions and therefore a clear impact on the sector's business.
