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The U.S. Drug Enforcement Administration (DEA) announced a delay on Monday in its final ruling on cannabis rescheduling until after the November presidential election. The decision, which has created uncertainty in the market, pits Vice President Kamala Harris, a cannabis reform advocate, against former President Donald Trump, whose vice-presidential pick is opposed to legalization.
According to Benzinga Pro, the market's response was immediate and pronounced. The AdvisorShares Pure US Cannabis ETF (NYSE:MSOS) dropped over 10% in early trading, while individual cannabis stocks experienced significant declines.
Amid the market downturn some of the biggest losers included Curaleaf Holdings, Cresco Labs, and Cansortium.
Among these, Green Thumb Industries emerges as a compelling buy opportunity. Despite the significant drop, GTBIF’s larger market cap of $2.25 billion and its position as one of the industry leaders suggest strong recovery potential, making it a strategic buy for investors seeking long-term growth.
In his latest report, Pablo Zuanic, a senior analyst at Zuanic & Associates, provided critical insights into the DEA's decision and its implications for the cannabis market. According to Zuanic, the announcement of an Administrative Law Judge (ALJ) hearing set to begin on December 2, 2024, was not entirely unexpected.
"While the most bullish thesis had anticipated a Final Rule before the election, the scenario of hearings was always a possibility," Zuanic said. He highlighted that the MSOS ETF's pre-market drop to $6.19 was within the expected range, given the ongoing uncertainties.
Despite the downturn, Zuanic sees potential buying opportunities, particularly if stocks continue to be volatile. "We believe the likelihood of successful legal challenges is drastically reduced if all significant ‘affected or impacted parties' are heard during the ALJ hearing."
However, Zuanic also warned of the political uncertainty that comes with the 2024 election. While a potential President Harris might complete the rescheduling process, the scenario under a Trump administration is less clear. "In the past, we would have said Trump might let the process die, but this is less obvious now," Zuanic said.
The report further emphasizes that investors should prepare for a possible downturn in cannabis stock prices, particularly if the MSOS ETF drops by 15-20% or falls below $5.
"If the MSOS ETF is down 15-20% in the next week, that would be ugly for investors. But, assuming Harris wins or Trump does not appoint a Sessions-type AG, we would use that as a buying opportunity," Zuanic said.
As the market digests the implications of the DEA's decision, Zuanic's analysis provides a balanced perspective, highlighting both the risks and potential rewards for investors in the cannabis sector.
