Cannabis stocks have finished 2023 in a worse position than they started the year despite promising developments around key issues for North American multi-state operators (MSOs) and a broader market rally toward the year-end. 

The Advisorshares Pure US Cannabis ETF (MSOS), an actively managed fund dedicated to U.S.-listed cannabis companies, is down 2.4% this year, trading hands at US$6.93 shortly after the market opened on Wednesday, December 27. 

Shares of the Advisorshares Pure Cannabis ETF (YOLO), which has exposure to global cannabis stocks, have fallen 14% over the same period. 

Here’s a recap of the major news events and industry trends that influenced cannabis stocks in 2023.

Rescheduling optimism

Cannabis stocks rallied briefly in September, spurred by optimism that marijuana may be rescheduled as a lower-risk drug in the United States.

Following President Joe Biden’s call for a review of marijuana’s classification as a Schedule I drug, the Department of Health and Human Services (HHS) in late August recommended the reclassification of marijuana as a Schedule III drug instead. 

In response to the recommendation, the Drug Enforcement Administration (DEA) has launched its own ongoing review. 

On December 5, a group of six governors from Colorado, Illinois, Louisiana, Maryland, New Jersey, and New York wrote to President Biden urging him to reschedule marijuana by the year-end. 

CIBC analysts believe the rescheduling will likely take place in 2024 closer to the US presidential election. 

Marijuana banking bill advances

Legislation that would remove penalties for banks and other financial institutions providing services to legal cannabis businesses advanced out of a Senate Committee to the full Senate on September 28, 2023. 

The bipartisan Secure and Fair Enforcement Regulation (SAFER) Banking Act will enable cannabis businesses, many of which operate as cash-only enterprises due to marijuana’s status as an illegal drug at a federal level in the United States, improved access to capital.  

Senate Majority Leader Chuck Schumer has committed to bring the bill before the Senate “for a vote as quickly as possible.”

But there has been no further action on the bill since late September, which saw investors once again pull back on cannabis stocks in the months that followed.

New recreational markets

Adult recreational cannabis use launched in Maryland on July 1, 2023, with marijuana users spending $21 million on the drug in the first week of sales alone.

For November, adult-use sales totalled nearly $56 million after reaching $90 million in October and $91.7 million in August.

MSOs saw an immediate boost to their toplines, with Curaleaf Hldgs Inc. (CSE:CURA, OTCQX:CURLF) reporting that it saw triple-digit sequential revenue growth across its Maryland stores and wholesale.  

Florida-focused Trulieve Cannabis Corp. (CSE:TRUL) said it saw a 235% quarter-over-quarter increase in foot traffic at its dispensaries after adult-use launched in the state. 

Connecticut and Missouri also launched their own adult-use markets in 2023. 

Cost-cutting and diversification

As cannabis firms continued to face cost challenges, particularly higher labor costs, they have resorted to selling off assets, scaling down production, and headcount reductions.

Another approach being taken by cannabis firms to shore up their finances is by diversifying their offerings, with companies expanding their footprint in a range of sectors from vegetables to beer. 

Leveraging its vegetable business Bevo Farms, Aurora Cannabis Inc (TSX:ACB, NASDAQ:ACB) is repurposing its Aurora Sun facility near Edmonton, Alberta to grow orchids.

Meanwhile, Tilray Inc (NASDAQ:TLRY) acquired eight beer labels from Anheuser-Busch, positioning it as the fifth-largest craft beer brewer in the United States.  

What to expect in 2024

The new year is looking promising for the struggling cannabis sector, with rescheduling a major theme. The removal of tax code 280E, which prohibits businesses working with Schedule I drugs from deducting otherwise established business expenses from their gross income, is poised to transform the cannabis sector overnight. 

Meanwhile, several U.S. states in the Midwest and East Coast regions are on track to legalize the drug, opening up new medical and/or adult-use market opportunities for MSOs. 

MSOs have also pointed to improving financials, for example, Aurora Cannabis reiterated that it expects to achieve free cash flow by the end of 2024. 

 Cannabis stocks have finished 2023 off in a worse position than they started the year despite promising developments around key issues for North American…  Read More