The recent release of documents recommending a lower classification of cannabis by the U.S. Department of Health and Human Services (HHS) has ignited a rally in the cannabis market. This proposed downgrade from Schedule I to Schedule III under federal law has caused noticeable increases in the stock prices of various cannabis companies.

Cannabis Stocks Rise

Several prominent cannabis companies have seen significant gains following the release of the HHS recommendation. Curaleaf Holdings Inc. (CURLF) experienced a 4.4% increase, while Trulieve Cannabis Corp. (TCNNF) surged by 11.1%. Green Thumb Industries Inc. (GTBIF) also rose by 5.6%, Cresco Labs Inc. (CRLBF) shot up by 13.7%, and Verano Holdings Corp. (VRNOF) saw a 5.3% increase in its stock value.

TerrAscend Corp. (TSNDF) and the AdvisorShares Pure U.S. Cannabis exchange-traded fund (MSOS) also recorded notable gains, with increases of 6.1% and 8% respectively.

Public Release of HHS Cannabis Report

Texas lawyer Matthew Zorn made headlines by obtaining and publishing a 250-page document that details the HHS cannabis report on his blog. This move followed his previous legal action against the HHS, requesting the release of this report.

The report, which was submitted to the Drug Enforcement Administration (DEA) in August, recommends reclassifying cannabis as a Schedule III substance. However, until recently, the details of this recommendation had not been made public.

Scientific Support for Medical Use

According to the HHS report, "Based on the totality of the available data, there exists credible scientific support for the use of marijuana in at least one of the indications where its medical use is widespread in the U.S." The report emphasizes that this analysis does not imply the establishment of safety and efficacy for marijuana, nor does it support FDA approval for any specific indication. However, the available data does provide some level of substantiation for the current clinical use of marijuana.

Medical Uses of Cannabis

Medical cannabis has been widely used to alleviate various conditions, including glaucoma and chemotherapy-induced nausea. In addition, CBD, a nonpsychoactive derivative of cannabis and hemp, has been utilized in Epidiolex, an FDA-approved drug prescribed for certain forms of epilepsy.

Overall, the potential reclassification of cannabis and the HHS recommendation has generated significant interest in the cannabis market. As the DEA reviews the proposal, investors continue to closely monitor developments in this evolving industry.

The DEA's Review of Cannabis Classification

The release of the HHS document has garnered praise from members of the cannabis industry. Rescheduling cannabis could alleviate the high taxes imposed on businesses operating in this sector under the 280E tax law, which was enacted during the drug wars of the 1980s.

Brady Cobb, the CEO of Sunburn Cannabis and an industry lobbyist, expressed his gratitude upon reading an official document from the U.S. government that acknowledges what humanity has known for centuries – the medicinal benefits of cannabis.

According to Emily Paxhia, the managing partner at Poseidon Investment Management, the HHS recommendation signifies a pivotal moment for the cannabis industry. It showcases the industry's unwavering commitment to promoting cannabis and its potential healing properties.

Paxhia also believes that cannabis stocks are well-positioned for growth and will react strongly to any change in classification.

The current classification of cannabis as a Schedule I drug, which labels it as having no medicinal use, stands in stark contrast to the Schedule III definition which permits regulated medical use of a controlled substance. If cannabis were to be rescheduled, it would not only be a significant historical milestone but would also pave the way for interstate trade and relieve legal-cannabis companies from the burden of ineligibility for normal business expense deductions under the 280E tax law.

Also read: Cannabis company Tilray Brands to continue on acquisition path in 2024 as chief executive looks beyond Q2 results

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