Cannabis company stocks surge by up to 80 percent after the drug was classified as a Schedule 3 substance.
The United States has reclassified marijuana as a less dangerous drug, a historic shift that has sent shares of cannabis companies soaring.
The U.S. Department of Justice’s recommendation Tuesday to classify cannabis as a Schedule 3 drug — the same as ketamine and Tylenol with codeine — does not fully legalize recreational use, but opens the door to lighter penalties as well as greater tax benefits for private investment in the industry.
Due to the drug’s classification as a drug equivalent to heroin and LSD, cannabis companies are currently unable to deduct normal business expenses on their taxes.
Shares of Canada’s Canopy Growth Corporation and Cronos Group rose 80.02 percent and 15.71 percent, respectively, while shares of U.S.-based Cronos Group rose nearly 40 percent.
The proposed change, which follows a review initiated by U.S. President Joe Biden, requires approval from the White House Office of Management and Budget, public comment and review by an administrative law judge before it takes effect.
The move helps narrow the widening gap between federal law and the legal framework in about 40 states where the drug is legal in some form.
Biden launched a review of federal marijuana law in October 2022 and announced pardons for thousands of Americans convicted of possession.
“Too many lives have been upended by our failed approach to marijuana. “It’s time we right this wrong,” Biden said in December.
Although the U.S. cannabis industry is estimated to be worth tens of billions of dollars, the drug is considered a controlled substance under federal law, hindering interstate commerce, blocking companies’ access to banking services and restricting funding for medical research.
Prohibition of the drug, first banned nationally in 1937, has also been blamed for exacerbating racial inequality in the justice system.
According to the American Civil Liberties Union, black people are 3.6 times more likely to be arrested for marijuana possession than white people, despite using the drug at similar rates.
In a Pew Research Center poll last month, 88 percent of Americans said marijuana should be legal for medical or recreational use.
Colorado and Washington became the first states to legalize cannabis for recreational use in 2012.