Cannabis stocks give up gains after Trump order recommending to ease curbs on marijuana

By Puyaan Singh and Christy Santhosh

Dec 18 (Reuters) – Shares of some cannabis firms fell between 3% and 12% at Thursday’s close, erasing previous gains from the session, after U.S. President Donald Trump signed an executive order recommending the loosening of federal regulations on marijuana.

The decision to reclassify cannabis as a less dangerous drug — which would imply the biggest shift in pot regulation since 1970 — would not legalize cannabis, but it would ease the operating environment for companies by improving access to capital, reducing tax burden and accelerating research and development.

At least two analysts said expectations that a mandate for cannabis banking would be included in the order — and then was not — could have caused some disappointment among investors.

“Each time that there has been a step forward in the direction of legalization — allowing growers to go public, legalization in some states — there has been a brief boom in cannabis stocks followed by a slide,” said Art Hogan, chief market strategist at B. Riley Wealth.

For now, Hogan said that cannabis stocks remain a speculative play and “likely will continue to do so.”

U.S.-listed shares of Tilray dropped 4.2%, Aurora Cannabis fell 3.4%, SNDL nearly 1.5% and Canopy Growth fell nearly 12% at close. Those stocks rose between 6% and 12% in afternoon trading before they reversed course.

“The decision to reclassify cannabis in the United States marks an important step toward modernizing federal cannabis policy and advancing the normalization of a regulated market,” a spokesperson for Canopy Growth told Reuters.

Trump’s order directs his attorney general to quickly move ahead with reclassifying marijuana, according to senior administration officials, a process that could lead to the psychoactive plant being listed alongside common painkillers, ketamine and testosterone as a less dangerous drug.

“Given that the space is heavily retail-driven, I believe that some retail investors were expecting cannabis to be immediately and unilaterally rescheduled by the President, whereas the executive order actually directs the AG to finalize rescheduling,” said ATB Capital Markets analyst Frederico Gomes.

A reclassification would move marijuana from Schedule I, which includes substances like heroin, ecstasy and peyote that have no accepted medical use, to Schedule III, which covers substances with a moderate-to-low risk of physical or psychological dependence.

With this move, cannabis firms would no longer be subject to Section 280E, a provision of the U.S. federal tax law that bars businesses dealing in Schedule I and II controlled substances from claiming tax credits and deductions for business expenses.

The Drug Enforcement Administration has to review the recommendation to list marijuana as a Schedule III drug under the U.S. Controlled Substances Act and will decide on the reclassification.

(Reporting by Puyaan Singh, Christy Santhosh and Mariam Sunny in Bengaluru, Suzanne McGee in Providence, RI; additional reporting by Sriparna in Bengaluru; Editing by Sriraj Kalluvila, Saumyadeb Chakrabarty and Alan Barona)