Trump Expected to Label Pot a Less Dangerous Drug

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00:00There's hot sauce on the pot stocks today, and if you've been listening to Charlie, you know why.

00:04A report in the Washington Post getting us back around this idea of President Trump

00:09warming up to weed. Must have gotten a call from Roger Stone. Trump seeks to cut restrictions on

00:16marijuana through planned order. This is rescheduling we're talking about here, and it's

00:21something that a lot of folks expected during the campaign. Maybe not so much after the president

00:26took office. This is, by the way, an idea that was pursued by the Biden administration.

00:31Never ended up happening, as the president now is expected to direct agencies to reclassify

00:36marijuana as a Schedule 3 drug, similar to common painkillers. It is currently in the same class

00:45as heroin, and this would not legalize marijuana, but it would allow cannabis companies to see

00:53the light of day and potentially use a bank. It would also mean a different tax status,

01:01and that's why we're seeing these stocks take off. We thought we'd dial up Nathan Dean to get his take

01:08on this, of course, at Bloomberg Intelligence, our senior U.S. policy analyst who's fielding calls on

01:13this all the time, because as you can tell us, Nathan, welcome back. Cannabis investors are passionate

01:20and very active, and they have been waiting for good news for a long time, but Lucy keeps pulling

01:25the football. Is this actually going to happen? You know, that's the number one question we got

01:30this morning from the clients is, is this for real now? And what we're telling our clients is that,

01:35look, you know, yes, these equities have hot sauce, lots of volatility. MSOS is up 38 percent,

01:41but really, I think what we need to do is see what happens with this order, because the president

01:45does not have the authority to unilaterally reclassify it from Schedule 1 to Schedule 3.

01:51What I think the order is going to say is that it's going to direct the Department of Justice and

01:54the DEA to restart this process of rulemaking change. Now, they're about 70 percent of the way

02:00through, so, I mean, obviously, it's not going to be that long, but if the DOJ comes out and says,

02:04right, we're going to do this on a speedier method, meaning we're going to forego a hearing,

02:09we're just going to move straight to the rulemaking process, they can get this done by the first half of next

02:13year. The question, though, is what is it going to be in that order? Because obviously, if that order

02:19just says I'm going to deem it valid and therefore it's Schedule 3 today, then that's going to have

02:24court challenges and uncertainty still reigns. What's the DEA think about this? Because I thought

02:30the tension was coming from within the administration last time we spoke. Yeah, and it still is. I mean,

02:37so obviously, we've heard anecdotally that the DEA, the staff there is not really on board with this

02:42idea. That was prevalent during the Biden administration. We saw no reason why it would

02:46change on the Trump administration. In fact, the administrator of the DEA, Terrence Cole,

02:49has a 30-year history of fighting marijuana, and he didn't really seem to be that on board with the

02:54idea. You know, the Washington Post report even talks about how Speaker Johnson tried to rebut some

02:59of President Trump's arguments here. So what we're telling our clients is that, look, even if

03:03reschedulization goes forward, it's not legalization. It doesn't lead to increased market share for

03:08these companies. What it does is it changes the tax code, something called 280E. So rather than paying

03:13a 40% tax rate, you're down to around 10% to 15%. So that's obviously good for those companies. But,

03:19you know, this resistance still remains. And that's why we're at a 30% chance of legalization.

03:25And that is what would prohibit market share growth, organic growth, everything like that.

03:31Huh. This is really just about tax. Okay. This is good to understand and not to conflate with the

03:39Safe Banking Act, right? Was I correct about that? Or these companies would still not be able to use

03:43banking services? Yeah, that's correct. I mean, under the Safe Banking Act, companies where banks

03:48would be able to service marijuana businesses. But our theory on that is until it's legislatively

03:53changed at the federal level, meaning until the drug is federally legalized, banks, especially the big

03:59banks, the publicly traded banks, they're not going to touch marijuana, because you're going to be

04:03afraid of running into the Bank Secrecy Act or anti-money laundering. And honestly, the revenues

04:08just isn't there for the risk. So for these companies, there's two things for market participants

04:13to keep in mind. One is the tax issue. And the second is there's a lot of retail sentiment in this

04:18hot sauce right now. If you look at the Canadian pot equities, they're also up 30%. And this largely

04:23doesn't apply to them. So there's a lot of folks out here saying, you know what, this is good.

04:27But just keep in mind, there's a lot of retail sentiment here as well.

04:31Well, and that's important, because you pointed out MSOS, that's the Advisor Shares Pure US

04:36Cannabis ETF, because a lot of these other ETFs fold in, to your point, Canadian companies,

04:42right, or tobacco companies, a lot of different grow companies, I think you find a lot of different

04:47stuff that you might not expect, for instance, in the MJ ETF. Is this what your clients are looking

04:53as this what our audience should be tracking? Yeah, I mean, honestly, what the reschedulization

04:59does is that it really opens up the mom and pop aspect for marijuana. So think of like the mom and

05:05pop farms in Oklahoma and Colorado and so forth. Those are the businesses that this is really geared

05:10towards. Now, the reason why it's positive for the bigger companies is because we do anticipate

05:15that there's going to be significant consolidation in this industry, as incrementally, things get better

05:20and better and better in terms of the legality of the drug. This is not an easy business to be in

05:25right now. And so as you know, you get more of a regulatory framework, usually it's the big players

05:30that gobble up the smaller players. And then they are the ones that have the technology spend,

05:34the compliance spend, the legal spend, that can deal with these regulations. So if President Trump

05:40does reclassify this, let's just say, middle of next year, you know, the tax relief will be there

05:45for the 2026 tax season in 2027. And then you will start to see, I think, some consolidation amongst

05:51the bigger players gobbling up to smaller players. But again, it doesn't really change the idea in

05:55terms of organic market share growth or anything like that. It just really just changes the finances

06:00of the system.

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