Cannabis stocks surged on April 23 following the U.S. Department of Justice’s announcement to reclassify cannabis from Schedule I to Schedule III, primarily impacting medical marijuana. However, the initial enthusiasm waned as investors realized the change primarily benefits medical cannabis operations. Notably, Trulieve Cannabis (TCNNF) and Green Thumb Industries (GTBIF) stand to gain significantly from this reclassification, which alleviates the tax burdens imposed by IRS Code Section 280E.
For Trulieve, the reclassification could reduce its effective tax rate from up to 70% to around 21%, enhancing profitability and enabling reinvestment in expansion. With a strong presence in Florida, Trulieve is well-positioned for future growth, especially if recreational sales are legalized. Green Thumb, on the other hand, has sustained positive GAAP net income and is actively repurchasing shares, signaling confidence in its financial stability and growth prospects.
Investors should closely monitor both companies, as the reclassification is expected to bolster their financials. Additionally, the upcoming June 29 DEA hearing could further impact the sector’s trajectory, potentially expanding the benefits of reclassification to adult-use cannabis.
Source: fool.com