On Tuesday, TD Cowen weighed in on the potential reclassification of cannabis by the Drug Enforcement Administration (DEA), which is considering moving the substance from Schedule 1 to Schedule 3. The proposal, which is set to be reviewed by the White House, is seen as a step towards acknowledging the drug's medical benefits and reducing regulatory hurdles.
The process, however, is expected to be lengthy. The Office of Management and Budget (OMB) may take until late June to review the proposal, with publication possibly delayed until June or July. Even after publication in the Federal Register, the DEA must analyze public comments and conduct a hearing before an administrative judge.
This detailed procedure is designed to ensure a robust legal foundation for the reclassification, anticipating possible legal challenges.
TD Cowen suggests that the Biden administration could receive a political boost from the proposal, even if the rescheduling is not finalized before the upcoming election. The mere act of proposing the shift could signal to voters the administration's stance on cannabis policy, while also providing political cover against criticism if the change is not completed in time.
Should the reclassification to Schedule 3 occur, cannabis companies would benefit from relief from the stringent 280E tax treatment. Still, this tax benefit is contingent on the actual reclassification and not just the proposal.
The analyst notes that finalizing such a significant policy change within a six-month window before an election would be exceptionally fast, leaving open the possibility that the outcome could be influenced by the election results.
InvestingPro Insights
With the cannabis industry at the precipice of potential regulatory changes, investors are closely monitoring companies like MSOS. The market has reacted to the evolving landscape, as reflected in MSOS's significant price uptick over the last six months, with a 61.07% total return, and a year-to-date return of 28.67%.
Currently trading near its 52-week high at 99.82% of that value, MSOS's performance has been noteworthy, delivering a 63.11% return over the last year.
Still, InvestingPro Tips highlight some concerns for MSOS, such as its weak gross profit margins and a valuation that implies a poor free cash flow yield. Additionally, the stock is known for its high price volatility.
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Understanding the company's financial health and market performance is crucial, especially when considering the implications of DEA's reclassification of cannabis. With MSOS not paying dividends to shareholders, growth and value investors alike must weigh the potential benefits against the inherent risks in such a volatile sector. The real-time data and InvestingPro Tips can serve as a guide to making informed decisions in this dynamic market.
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