There was a bit of a boost in cannabis stocks last week as the United States’ leading health agency suggested changes should be made to federal marijuana laws. Yet these remain merely recommendations, with change unlikely in the near term.
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What happened?
These recommendations from the Health and Human Services (HHS) department come at a fairly bad time. The department asked the Drug Enforcement Agency (DEA) to soften its stance on cannabis, and downgrade to Schedule III from Schedule I. Marijuana has been a Schedule I offence since the Nixon era.
The reason it’s such bad timing, however, is that the U.S. is heading towards another election in the coming year. It’s unlikely that the country will see any major improvements in the policy until after the election. So investors should hold their breath until at least 2025.
Even so, such a change would be a huge relief to cannabis stocks. The change would boost cash flow significantly. The HHS has already found through extensive research that cannabis has acceptable medical uses and low potential for abuse and dependence, and is recommended by doctors across the country.
But that has nothing to do with politics.
The upside and downside
Cannabis reform in the U.S. would certainly provide major cash advantages to cannabis stocks around the world. Rescheduling alone would exempt companies from an Internal Revenue Service (IRS) rule that bars the deduction of operating expenses against Schedule I drug revenue.
But such a change isn’t likely until after the election, and only under a Biden administration. It’s usual that second terms are when Presidents try to push forward all the positive moves they wanted to make while in office. Biden stated from the outset that marijuana reform (though not full legalization) was one of these moves.
Change happens slowly, but it could be that within the next decade we see such a change occur. So it might not be that we need to wait for full legalization to see improvements among cannabis stocks. Instead, rescheduling could be enough!
A stock to consider
Instead of worrying about the future of the U.S., there are still cannabis stocks out there that are doing well. In fact, a few have even reached a profit, and are due for more thanks to strong partnerships.
This would include Organigram Holdings (TSX:OGI), with British American Tobacco investing $124.6 million into the company back in November 2023. Only recently approved by shareholders, the investment will put $81 million towards a strategic investment pool focused on international cannabis opportunities. The other $41 million would go towards general corporate purposes.
As Organigram stock continues to expand internationally, the stock is already ahead of other cannabis stocks. The company has negligible debt, with $30 million in capital expenditure projects this year to enhance production and lower facility costs. And again, it’s one of very few cannabis stocks making these cost-saving moves and expansion, while still making a profit.
So if you’re looking to invest in the international expansion of cannabis stocks, anticipating a boost should rescheduling happen, Organigram stock would be an excellent option. The stock is by far one of the most financially responsible cannabis stocks out there. Shares may be down 50% in the last year, but have seen a rise of 88% in just three months. So now could be the time to buy once more.
