Cannabis Stocks May Escape From Hell

You’re reading a copy of this week’s edition of the New Cannabis Ventures weekly newsletter, which we have been publishing since October 2015. The newsletter includes unique insight to help our readers stay ahead of the curve as well as links to the week’s most important news.

Friends,

What a great week in a terrible year for cannabis stocks! The NCV Global Cannabis Stock Index rallied an incredible 21.7%, and it is now up 19.1% in Q3. Year-to-date, though, it remains down 8.0%, and it is down more than 90% still from the peak in February 2021.

So, what’s an investor to do? On the one hand, the stocks  are very cheap. On the other hand, though, they have run up a lot.

This Was Good News

Recall that almost a year ago, President Biden suggested publicly that he would look into the scheduling of cannabis. His Department of Health and Human Services did so apparently, instructing the DEA to move it from Schedule 1 to Schedule 3. So, this was not a total surprise, and several have been anticipating it.

Rescheduling to Schedule 3 would eliminate 280E taxation, one of the two things we have called out as a potential catalyst for the sector. That tax is very onerous, requiring companies to pay much higher taxes than a normal income tax. In fact, companies with negative incomes after all expenses often are required to pay an income tax.

But, It May Not Take Place As Expected

We are not familiar with the DEA enough to assess the timing or the action it takes. It could reject the HHS request, which we do not expect, but it might say that it agrees that Schedule 1 is wrong but move it only to Schedule 2. This would not help at all! 280E stays in law unless it is moved to Schedule 3 or higher. The rescheduling could take a long time, and it might not be exactly what investors are now expecting.

There Could Be This Too

One of the consequences of the DEA moving cannabis from Schedule 1 to a less riskier Schedule is that the FDA may step up its regulatory role. We believe that this is a great risk to the current operators. The FDA has been unable to regulate CBD from hemp after nearly 5 years since it was legalized!

Conclusion

We are excited about cannabis likely being rescheduled, but we continue to have concerns. We have been discussing all year how cheap cannabis stocks are, and, even after the rally, this remains the case. Our suggestion to readers is to not chase the stocks here but to be prepared as we learn more about the scheduling. We also think that investors should look at the ancillary cannabis stocks, as they have lagged the big gains of the MSOs. Their customers experiencing better financials would be a good thing for them, and, if it doesn’t pan out, they have better balance sheets and do not have to pay 280E.

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New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:

Exclusives

The Global Cannabis Stock Index Rallies Again in August

M&A

Planet 13 to Buy VidaCann in Florida for $49 Million in Stock and Cash

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Sincerely,

Alan & Joel

Based in Houston, Alan leverages his experience as founder of online community 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email