Investing News

Marijuana stocks rose after months of declines after news that President Biden on Oct. 6 pardoned thousands of individuals convicted of simple possession of marijuana.

Both the sector as a whole and major names like Canopy Growth Corp. (CGC) rose rapidly on the news. The move clears every person convicted on federal charges of simple possession since the 1970s. The exact number of individuals affected by the sweeping pardon is unclear, but roughly 6,500 people were federally convicted of simple possession between 1992 and 2021.

The Biden administration’s action represents a shift in governmental response to marijuana possession at a time when the legality of the drug is hotly debated. Although marijuana use remains illegal at the federal level, 37 states now permit its use in some form.

Key Takeaways

  • On Oct. 6, 2022, President Biden pardoned anyone who has committed or been convicted of simple possession of marijuana at a federal level.
  • Marijuana stocks spiked following the news after months of declines.
  • The president also urged state governors to issue similar pardons on the state level.
  • The White House said that the government would reexamine the scheduling of marijuana per the Controlled Substances Act.
  • Marijuana is currently a Schedule I substance, categorized alongside heroin and LSD.

Marijuana Industry Response

An exchange-traded fund (ETF) representing the broader legal cannabis industry—the ETFMG Alternative Harvest ETF (MJ)—spiked following the announcement from the White House. It surged by more than 26% on Oct. 6, although as of this writing on Oct. 7, it has since dropped to about a 12% on the week. This comes after having badly trailed the market for months MJ has badly trailed the broader market in the past year, providing a one-year trailing total return of -62.9% compared with -16.7% for the S&P 500.

Big names in the sector such as Canopy Growth and Aurora Cannabis Inc. (ACB) both rose substantially, but gave up far more of their gains than the sector at large. CGC has provided a one-year trailing total return of -78.3% as of Oct. 7, behind both the S&P 500 and MJ. Aurora lagged still more, returning -84.5% over the same period.

Impact of Pardons

President Biden stated that the pardon applies to “all current United States citizens and lawful permanent residents who committed” or “who have been convicted” of the offense of simple possession. In an accompanying statement, also issued on Oct. 6, Biden announced that he would urge all state governors to similarly pardon all prior state-level marijuana possession convictions. Finally, and perhaps most critically for the future of the legality of marijuana at the federal level, Biden announced that the secretary of Health and Human Services and the attorney general would review how marijuana is scheduled under federal law. Biden added that changes to the legality of marijuana possession and use should not impact restrictions on trafficking, marketing, and under-age sales.

Marijuana is currently classified under federal law in Schedule I of the Controlled Substances Act. Schedule I is intended for the most dangerous substances and also includes drugs such as LSD and heroin.

The Bottom Line

President Biden pardoned anyone who has committed or been convicted of simple possession of marijuana at the federal level on Oct. 6. He also urged state governors to do the same on a state level and announced plans to have the scheduling of marijuana reexamined. While this doesn’t affect the legality of marijuana on a federal level today, it could indicate future changes. It remains to be seen if this is a turning point for marijuana stocks or just a temporary bump.

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