The cannabis sector remains unloved as investors abandon hope that President Donald Trump will come through on his campaign promise to reschedule the drug.
Moving cannabis to Schedule III from Schedule I under the Controlled Substances Act would help cannabis companies by obviating an IRS rule that prohibits them from deducting operating expenses (Rule 280E).
I continue to think Trump will live up to his “promises made, promises kept” mantra. It will take some time, because he’s obviously active on many fronts, and cannabis reform does not rise to the level of top priority. Polls continue to show the majority of voters favor reform, particularly younger voters. So, there’s a favorable political angle for conservatives in cannabis reform. Cannabis sales growth continues to be particularly strong (6.2%) in Missouri, a red state.
Meanwhile, cannabis companies remain in hunker-down mode, containing expenses and capital spending to try to survive under the weight of debt that is coming due over the next two years.
Markets hurt by wholesale price compression are showing signs of improvement. In the past three months, wholesale prices firmed up in Oregon, Colorado, Arizona, Nevada, Pennsylvania, Maine, Delaware and Illinois. “That’s extremely encouraging,” says Chicago Atlantic managing partner Peter Sack. “Some of the legacy markets are starting to reverse some of the trends that have soured commentary on the space.”
Meanwhile, cannabis prices are rising in Canada. The price of cannabis with 25%-30% THC concentration increased 6.8% in February to $1.57 a gram, from $1.47 the month before. That was the highest price since August 2022, when this category of cannabis flower traded at $1.62 per gram. Higher potency flower is increasingly popular among users.
The average price for all dried flower climbed 1.5% from January to $1.38 per gram. The average price was up 7.9% in January.
I expect this trend will persist, fueled by competition from medical cannabis exporters and a rebound in retail sales. Canadian cannabis exports soared to nearly 13,000 kilograms per month in the final four months of 2024, compared to an average of 7,700 kilograms earlier in the year. Retail sales rebounded in the last four months of 2024, reaching a record in December.
Even if lawmakers eventually crush this trend, it is important because the hemp-based product mini-craze nudges THC into the mainstream. That will help build consumer and voter support for cannabis reform, including rescheduling.
Three-fourths of young adults age 18-24 say they substitute cannabis for alcohol at least once a week, according to a Bloomberg Intelligence survey. The report found that 65% of consumers 25-34 make the switch, as do 42% of those 45-54.
The report attributes the trend in part to rapid expansion of the availability of hemp-based THC drinks, which are legally available under federal law in mainstream liquor stores. Trulieve (TCNNF) and Curaleaf (CURLF) have recently launched hemp-based THC beverages. Cannabis-based THC drinks (as opposed to hemp-based) are limited to state-legal cannabis dispensaries.
“I am enthusiastic about the hemp beverage market because it increases the sales pie,” says Sack. “The people buying in liquor stores and convenience stores are people not going into dispensaries to purchase drinks,” he said in a recent interview with the Dales Report.
Edible Brands, known for its fruity Edible Arrangements, is expanding into hemp-derived edibles, like gummies, drinks and supplements. The products can be purchased for delivery from Edibles.com.
“We’re making it easier than ever for consumers to access premium, vetted products with the convenience they expect today,” said Edible Brands CEO Somia Farid Silber in announcing the new THC-based product line. The company also said it’s going to launch brick-and-mortar stores starting with a flagship outlet in Atlanta. DoorDash a few months ago started offering delivery of hemp-derived THC and CBD products, including gummies and beverages.
A challenge to watch here is that several states are pushing back by moving to ban hemp-derived THC products, or heavily regulate them. California already bans hemp-derived THC products. Texas, Florida and Georgia, among others, are considering outright bans or tough restrictions. Hemp-derived THC is legal at the federal level under the Farm Bill, but many legislators are looking to roll that back.
Analyst estimates (which are based on guidance from companies) show an expected 4.5% increase in sales in 2026 compared to this year. Analysts are pricing in legalization of recreational use in Pennsylvania, among other sources of growth in Ohio, Minnesota, Maryland and Kentucky markets, for example.
Speaking of Pennsylvania, a key date to watch here is the June 30 annual state budget approval deadline. By some estimates, rec-use legalization would bring in $500 million a year in tax revenue.
Governor Shapiro (D) loves to point out that Pennsylvania currently loses a lot of that revenue to surrounding states, which have already legalized recreational use. He proposes legalizing rec-use cannabis as of July 1, and starting sales in January 2026. He estimates rec-use sales would generate $1.3 billion in tax revenue in the first five years of sales.
In a recent radio interview, Rep. Dan Frankel (D), who chairs the House Health Committee, said he’s optimistic that rec-use legalization could be approved as early as this summer. He called legalization “inevitable” because Pennsylvania is “bleeding out revenue” to bordering states like Ohio, New York, New Jersey and Maryland, which have all legalized rec-use sales.
Surveys show that about 70% of voters in the state support the reform, including a majority of Republicans.
Meanwhile, many other markets are expanding. The Ohio market continues to grow. Missouri remains a strong market. Minnesota is in the process of launching recreational use sales. And New York remains a developing market.
The bottom line: Gloom and doom is pervasive in the cannabis sector right now. But several positive trends exist. And who knows. Trump might actually mean it when he says “promises made, promises kept.” Signs that Trump is taking on the Drug Enforcement Agency deep state opposition to rescheduling and coming through on his campaign promises would create a major attitude shift among cannabis investors. That would send beaten-down cannabis stocks much higher.