As Tilray, Curaleaf, Cresco Labs, MSOS ETF stocks jump, old risks remain

Cannabis stocks and ETFs are having a good time after some regulatory movements in the past few days. The AdvisorShares Pure US Cannabis ETF (MSOS) surged by over 10% on Friday and was up by more than 7% in the pre-market session. 

Tilray Brands jumped by over 2% in the pre-market while Curaleaf has risen by 12% in the past month. Other companies like Cresco Labs and Trulieve have also done well in the past few days.

The most likely reason for the rally is that a group of American state attorney generals asked the FDA to reschedule Cannabis from Schedule 1 to Schedule 3. In their letter, these AGs argued that such a move was the most logical approach towards a more equitable cannabis policy. 

This letter followed a separate one they sent to President Joe Biden in December. It also came at a time when the DEA was conducting a similar review to change the classification. If this happens, analysts believe that companies in the US would be in a better position to offer their services across state lines.

The US has made some progress on cannabis in the past few years. So far, 39 states have passed laws legalising medical marijuana. While this is good news for the industry, cannabis companies in those states face major challenges, including access to banking.

In 2023, a group of senators worked on the Secure and Fair Enforcement Regulation Banking Act, which aimed at making easy for US banks to offer services to companies in the industry. It is unclear whether the bill will pass a divided Congress this year. 

Therefore, the risk for MSOS ETF and cannabis stocks is that this hype will soon end as we have seen in the past. For example, MSOS stock jumped by over 110% between late August and mid-September last year as the banking bill advanced. It then erased most of those gains as the momentum waned.

The same pump happened between September and October 2022 when it jumped by 66% amid hopes of legalization. Therefore, judging by history, unless something major happens, there is a likelihood that the hype will end soon.

Besides, broadly, sentiment surrounding interest rates is changing in the United States as inflation remains sticky. Analysts have now changed their estimate for when the Fed will start slashing interest rates from March to June this year.

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