Cannabis MSOs to see increased investment, lower taxes from reclassification

[Background from marijuana plants. Hemp leaves and seeds. Legalization of marijuana, Drug factory,]
Dmytro Skrypnykov/iStock via Getty Images

Cannabis multi-state operators, which surged Wednesday following a report that marijuana would be reclassified [https://seekingalpha.com/news/4577995-marijuana-msos-surge-report-trump-set-to-formally-reclassify-cannabis] as a Schedule III substance, are poised to benefit from increased capital investment and lower taxes, according to an industry insider close to one MSO.

The individual, who requested anonymity, told Seeking Alpha that the official announcement [https://seekingalpha.com/news/4578646-pot-stocks-rise-trump-reschedules-marijuana] earlier today and final order from the Justice Department have been "50 years in the making" and will have many positive impacts on companies in the space.

Because marijuana was classified as a Schedule I substance before—meaning it has no recognized medical benefits and a significant risk of abuse—many institutional investors steered clear of investing in MSOs. But that could soon change, the insider said.

The person said the investment landscape before the announcement had been "a desert with no buyers."

The individual also highlighted tax breaks cannabis businesses will now be eligible for with the reclassification. Section 280E of the tax code, which prohibits companies engaged in the trafficking of Schedule I or II substances from deducting business expenses, will no longer apply to MSOs.

It is important to note that the reclassification does not mean marijuana is legalized on the federal level. Penalties still exist on the federal level for possession and distribution, though as a Schedule III, they are less than for a Schedule I drug.

The move will also allow further research into marijuana's medical benefits.

While other observers cheered the reclassification, they noted that other changes are needed before more significant benefits for the industry can be achieved.

The "final order to place certain cannabis-related products in Schedule III marks a meaningful, but highly targeted, policy shift," FundCanna [https://fundcanna.com/] CEO Adam Stettner said in a statement. "Rather than broadly rescheduling cannabis, the order applies specifically to FDA-approved cannabis drugs and products operating under state medical marijuana frameworks, reinforcing that federal recognition is advancing but not yet universal across the industry."

Multi-state operators: Ascend Wellness (OTCQX:AAWH [https://seekingalpha.com/symbol/AAWH#hasComeFromMpArticle=false#source=section%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews]), Curaleaf Holdings (OTCPK:CURLF [https://seekingalpha.com/symbol/CURLF#hasComeFromMpArticle=false#source=section%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews]), Cresco Labs (OTCQX:CRLBF [https://seekingalpha.com/symbol/CRLBF#hasComeFromMpArticle=false#source=section%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews]), Green Thumb Industries (OTCQX:GTBIF [https://seekingalpha.com/symbol/GTBIF#hasComeFromMpArticle=false#source=section%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews]), Trulieve Cannabis (OTCQX:TCNNF [https://seekingalpha.com/symbol/TCNNF#hasComeFromMpArticle=false#source=section%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews]), Ayr Wellness (OTCQX:AYRWF [https://seekingalpha.com/symbol/AYRWF#hasComeFromMpArticle=false#source=section%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews]), Verano Holdings (VRNO [https://seekingalpha.com/symbol/VRNO]), and Jushi Holdings (OTCQX:JUSHF [https://seekingalpha.com/symbol/JUSHF#hasComeFromMpArticle=false#source=section%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews]).

Canadian cannabis LPs: Canopy Growth (CGC [https://seekingalpha.com/symbol/CGC]), Tilray Brands (TLRY [https://seekingalpha.com/symbol/TLRY]), Cronos (CRON), Aurora Cannabis (ACB), SNDL (SNDL), and OrganiGram Holdings (OGI).

Cannabis ETFs: AdvisorShares Pure Cannabis ETF (NYSEARCA:YOLO [https://seekingalpha.com/symbol/YOLO#hasComeFromMpArticle=false#source=section%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews]), Amplify Alternative Harvest ETF (MJUS [https://seekingalpha.com/symbol/MJUS]), and Amplify Seymour Cannabis ETF (NYSEARCA:CNBS [https://seekingalpha.com/symbol/CNBS#hasComeFromMpArticle=false#source=section%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews]).

Cannabis REITs: Innovative Industrial Properties (IIPR [https://seekingalpha.com/symbol/IIPR]), New Lake Capital Partners (NLCP [https://seekingalpha.com/symbol/NLCP]).

MORE ON MULTI-STATE OPERATORS

* Green Thumb's 280E Gamble [https://seekingalpha.com/article/4893247-green-thumbs-280e-gamble]
* Trulieve Cannabis: Preparing For Rescheduling [https://seekingalpha.com/article/4893065-trulieve-cannabis-preparing-for-rescheduling]
* Cresco Labs Will Remain Undervalued Without Any New Synergies (Rating Downgrade) [https://seekingalpha.com/article/4882565-cresco-labs-stock-will-remain-undervalued-without-new-synergies]
* Green Thumb expands buyback program by $100M [https://seekingalpha.com/news/4578581-green-thumb-expands-buyback-program-by-100m]
* Quant snapshot on cannabis names as Trump plans reclassification [https://seekingalpha.com/news/4578391-quant-snapshot-on-cannabis-names-as-trump-plans-reclassification]