Cannabis Stocks Are Struggling
On January 3rd, I wrote about the explosive start of the year for cannabis stocks. While I was (and still am) excited about 2025 for the sector, I explained how I was reducing my exposure in my model portfolios at 420 Investor.
Now, a bit more than halfway through January, the New Cannabis Ventures Global Cannabis Stock Index is down 4.1% year-to-date. It ended the year at 6.88 and is now at 6.60, with a new all-time low of 6.46 set in the second week of the year. The good news is that it held last week. That is not such great news! The 5-year chart shows how much pain there has been since early 2021:

The reversal after the early jump has left cannabis stocks down again. Stocks overall are up so far in January. In this piece, I explain what is going on with the cannabis sector and reaffirm my positive outlook for cannabis stocks.
Why Cannabis Stocks Are Down
As I suggested in that piece earlier this month, the beginning of the year can sometimes lead to buying of beaten-up stocks after the official end of tax-loss selling season. As I have been suggesting, the cannabis sector is mainly about the potential end of 280E taxation.
The DEA has proposed rescheduling cannabis, and it started a hearing in December. The testimonies were set to begin on 1/21, but the DEA suspended the hearings last week. The rescheduling, if it takes place, will wipe out 280E taxation, a major positive catalyst. The situation is murky, as investors shouldn't be rooting for the DEA to help them. Maybe the whole thing has been a scam.
There was more "bad news" announced on January 8th, with an ETF operator, Amplify Funds, telling the world it was shutting down the U.S. Alternative Harvest ETF (MJUS). I wrote the weekly NCV newsletter about this issue, suggesting that it remains to be seen how it will play out. The fund still has a week to go before it is wound down.
Why I Remain Bullish on Cannabis Stocks
There has been so much bad news for cannabis operators and investors over the past few years. The main problem, in my view, is that cannabis investors and traders got overly bullish in late 2020 into early 2021. The hopes for full legalization and other things did not play out. In late 2022, I wrote about two big potential catalysts, the end of 280E taxation (the big one) and potential listing by a major exchange for U.S. cannabis companies. Neither of these has happened, though folks got very excited about the rescheduling process.
Cannabis stocks ripped higher in late August of 2023, when news broke that the Department of Health & Human Services, had recommended that the DEA reschedule cannabis from Schedule 1 to Schedule 3. Then, on 4/30/24, the DEA actually moved forward in this manner! Cannabis stocks soared, but that was the highest level since then. On Friday, the Global Cannabis Stock Index was 43.7% lower.
The change is still in process, but the sector suffers from its mainly retail investors being out of patience. We have a new President being inaugurated tomorrow, and Trump has publicly stated that he favors rescheduling. With this politician and almost all of them, one never knows!
If 280E remains, it will be terrible for American cannabis companies. Investors need to appreciate this reality. Of course, not all cannabis stocks are American operators. If 280E gets eliminated, it will help these American cannabis operators deal with their debt loads due to improved cash flow from paying less taxes. If I knew that 280E was not going away, I would not be bullish on cannabis stocks. I wish that there were a way to know the exact odds, but I am unaware of that tool.
I continue to believe that it is likely that rescheduling will take place, though I recognize that it may not. To me, there is nothing particularly bullish about rescheduling, which makes a lot of sense, except for wiping out 280E taxation. I think of the MSOs as call options on rescheduling. They are very beaten up and seem cheap to me. At New Cannabis Ventures, we maintain an index for the American cannabis companies, and the American Cannabis Operator Index hit an all-time low recently. The index is currently down 3.3% in 2025 after plunging 45.5% in 2024:

I am bullish on cannabis stocks, but I don't like all of them. Even some of the ones where I have been negative, I have upgraded my view to neutral. At Seeking Alpha, I just submitted a follow up on Canopy Growth (CGC) that has not yet been published. In November, after they reported their fiscal Q2, I warned investors to avoid it.
The stock has plunged since then, but I still don't like it and expect it could test $1, which is about 50% lower.
I include on my Focus List at 420 Investor 23 cannabis stocks. Currently, my Beat the GCSI model portfolio holds 10 of them. 5 of these are more than 10% of the model portfolio, including 2 large MSOs, 2 Canadian LPs and 1 ancillary company. Again, the Canadian LPs trade on the NASDAQ, and the ones I like seem very cheap. Ancillary companies trade on the NASDAQ too. Though they don't pay 280E taxation, their customers do. I don't think that they will necessarily pop immediately if 280E is eliminated, but their sales and earnings will improve.
In December, I shared my entire Focus List and included thoughts on each stock. At the end of that article, I shared information about how to follow me more closely, with some options that are free:
Read the NCV newsletters
Join 420 Investor
Read Alan's Seeking Alpha articles
Read his Seeking Alpha blog posts
While I sometimes write here too, this is not the best place to keep up with my views on cannabis stocks. With that said, there is some good stuff here!
Conclusion
While I like cannabis stocks, I understand that my bullishness may be incorrect. I was very bearish near the end of 2022, and I didn't become bullish until 2024.
Cannabis investors are betting on 280E taxation to end and risking that it doesn't. Of course, there is a lot more to the market than American operators, but they do matter. The market had a horrible Q4, and 2024 ended being another bad year. This year is off to a tough start, but it could work out very well.
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