Reclassification Reports Fueling U.S. Marijuana Investing

New reported plans by the U.S. government could pave the pay for profit in marijuana investing.

The White House is reportedly seeking to reclassify marijuana from a Schedule I drug to a Schedule III. This would not legalize the drug for recreational use. It would label cannabis as a less dangerous substance and move it to a less regulated group.

The Drug Enforcement Agency notes that Schedule I drugs have “no currently accepted medical use and a high potential for abuse.” Meanwhile, Schedule III constituents are labeled as drugs “with a moderate to low potential for physical and psychological dependence.”

Meanwhile, research indicates that cannabis sales can be expected to continue to grow. A report from cannabis data company BDSA finds that cannabis sales around the globe will pass $61 billion in 2026.

This marks a continuing paradigm shift in public perception in the U.S. regarding marijuana. These developments can be beneficial for investors, opening an opportunity to potentially profit off of cannabis investing. Given that the reclassification is happening in the United States, ETFs that invest in U.S. cannabis industry specifically stand to benefit.

U.S. Investing

For example, the AdvisorShares Pure US Cannabis ETF (MSOS) fits the bill, as the fund’s assets are entirely allocated to U.S. companies. It is actively managed and has a net expense ratio of 0.83%.

Primarily, the fund invests in in companies that get at least half of their net revenue from the marijuana or hemp industries in the U.S. Additionally, MSOS invests in derivatives that have similar characteristics to the target companies. According to the fund prospectus, at least 25% of investments within MSOS are in the pharmaceuticals, biotech, and life sciences industry groups.

Before considering allocating assets, investors should keep in mind that many marijuana ETFs have struggled over the years. Earlier this year, GlobalX Funds shut down the GlobalX Cannabis ETF, which held $29 million, according to Reuters.

However, the MSOS strategy has shown strong results. As of April 30, 2024, the fund’s NAV is up more than 61% YTD. Investors are signaling support for the fund as well, with MSOS seeing over $64 million in net flows over the last month alone.

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