Canopy Growth drops 20%, Tilray drops 15% and Curaleaf falls 5% after sharp gains on the DEA's plan to make pot a Schedule III controlled substance
Canopy Growth Corp., Tilray Brands Inc. and Curaleaf Holdings Inc. moved into the red along with other cannabis stocks on Wednesday.
The sector cooled off after a huge rally in the previous session on plans by the Biden administration to reclassify pot as less dangerous under federal law.
Canopy Growth (CGC) moved lower by 21%, Tilray Brands Inc. (TLRY) dropped 14% and Curaleaf (CURLF) fell 5% and Trulieve Cannabis Corp. (TCNNF) shed 10.6%. TerrAscend Corp. (TSNDF) dropped 13.3% and Cresco Labs Inc. (CRLBF) declined by 4%.
The AdvisorShares Pure U.S. Cannabis ETF MSOS declined by 6.8% and the Amplify Alternative Harvest ETF MJ lost about 8.8% of its value.
In the previous session, Canopy Growth notched its second-largest one-day gain in the stock's history with a whopping 79% gain, on the heels of a report by the Associated Press that the Drug Enforcement Administration planned to lower the classification of pot to Schedule III from Schedule I.
Schedule III substances include ketamine and testosterone and are typically available through a doctor's prescription.
Since 1970, pot has been classified as Schedule I, with no health benefits, in the same bucket as heroin and LSD.
After the AP report, the U.S. Department of Justice issued a statement that Attorney General Merrick Garland circulated a proposal to reclassify marijuana to Schedule III.
"Once published by the Federal Register, it will initiate a formal rulemaking process as prescribed by Congress in the Controlled Substances Act," the statement said.
John Hartmann, chief executive of cannabis company Ascend Wellness Holdings (AAWH), told MarketWatch he expects the change in federal law to "have a dramatic affect on taxation and capital availability" to the industry.
"It's been anticipated for many years - it's a very positive step," he said. "We've been told by institutions and lenders they'd enter the sector."
While the process may take until 2025 to complete, the move by Garland marks a major step in the right direction, he said.
Meanwhile, Senate Majority Leader Chuck Schumer (D-NY), Senate Finance Committee Chairman Ron Wyden (D-OR), and Senator Cory Booker (D-NJ) said in a statement that they plan to reintroduce legislation to remove cannabis from the Controlled Substances Act.
Michael Harlow, managing partner of CohnReznik, who works on tax matters with cannabis companies, said the Schedule III designation raises questions around the 280E tax requirement that prevents dispensaries and other plant-touching businesses from taking standard tax deductions.
While the Schedule III status of pot would eliminate 280E, it's unknown whether companies will be able to reflect the change for the 2024 tax year or even past tax years for filings with the Internal Revenue Service, he said.
"I'd be shocked if the IRS has regulations ready to go to address this," he said. "The details still have to be worked out."
He said cannabis companies may be more aggressive in asking for 280E rebates or exemptions now that the federal government plans to remove cannabis from Schedule I.
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