Are Cannabis Stocks Ready to Rally?

Are cannabis stocks ready to rally?

Those who are enthusiastic about both Donald Trump and Kamala Harris supporting legalization in some form would say yes.  But it’s going to take a lot more than just lip service from the two major candidates.

You see, when asking yourself, are cannabis stocks ready to rally, the first thing you have to consider is the overall health of the cannabis market altogether.  

It didn’t get much coverage in the mainstream press, but last month, Whitney Economics released a report showing that, as of August 2024, only about 27% of U.S. cannabis businesses were profitable, with about 72% identified as either just breaking even or completely unprofitable. 

To put this in perspective, the U.S. Chamber of Commerce says that 65.3% of all small businesses are profitable.  So the cannabis industry is well below the national average.  Which is bizarre when you consider that one of the easiest things in the world to sell is weed.  But not in the “legal” market.

To be fair, the reason most of these companies are not profitable is because of overzealous taxation.  Some cannabis businesses pay tax rates as high as 52.5%.  Imagine running a business, and more than half of your revenues were stolen every year.  It’s absurd.  I can’t imagine any business owner wanting to operate in such a financially hostile environment. 

That being said, the tide is turning in Washington when it comes to legalization.  And while we won’t see full-scale legalization anytime soon, those eager to progress on cannabis policy are pushing to move cannabis from a Schedule 1 drug to a Schedule 3 drug. 

The Biden administration formerly proposed this move a few months ago, and both Trump and Harris seem to support it.  This wouldn’t make cannabis possession legal, but it would allow for one big change that would make some of these cannabis stocks very attractive.

You see, under the Schedule 1 classification, cannabis companies pay taxes on their gross income instead of their net income.  They can’t take the typical deductions any other company can.  And this is one of the reasons margins are so razor thin in the cannabis industry.  But if these companies can finally start utilizing the same deductions other companies take, you’re going to see the valuation of some of these cannabis stocks soar.

The question is, will rescheduling really happen?  And if so, when?

Are Cannabis Stocks Ready to Rally?  We’ll soon find out!

When it comes to politics and policy, I believe nothing until it actually happens.  This is especially true in today’s political climate where these people will literally say anything to get your vote.  Even if it’s a complete lie.  And while I do believe rescheduling will come before 2026, the process itself may be too slow to save some of these fledgling cannabis companies.

Still, if you think cannabis stocks are ready to rally, I would recommend owning only the ones that have been able to generate significant revenue and minimize losses while still under the Schedule 1 status.  These include…

• Innovative Industrial Properties (NYSE: IIPR) — Market Cap: $3.54 Billion
• Green Thumb Industries: (OTCBB: GTBIF) — Market Cap: $2.45 Billion
• Curaleaf (OTCBB: CURLF) — Market Cap: $2.1 Billion

At this point, it’s really just a waiting game.  And while I do believe cannabis stock will rally on rescheduling, I’m not convinced they’ll rally enough to make the wait worthwhile.  Especially when there are real opportunities right now that are delivering the kinds of gains that’ll dwarf anything coming out of the cannabis sector. 

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To a new way of life and a new generation of wealth…

Jeff Siegel

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Jeff is the founder and managing editor of Green Chip Stocks. For more on Jeff, go to his editor’s page.

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