(Reuters) -Shares of marijuana companies climbed as much as 14% in morning trading on Thursday after the Department of Health and Human Services recommended its reclassification as a lower-risk substance following an 11-month review.
Marijuana remains illegal at the federal level even as nearly 40 U.S. states have legalized its use in some form, and the reclassification is seen as the first step toward wider legalization that has the support of a majority of Americans.
"Certainly moving cannabis off of Schedule 1 is the right decision and long overdue. Though a full descheduling would be preferred and likely most appropriate for cannabis," said Patrick Rea, managing director of venture capital firm Poseidon Garden Ventures.
The firm held investments in companies like retailer and producer Green Thumb Industries, and cannabis data platform Flowhub, according to its website.
Shares of cannabis firms Cronos Group, OrganiGram Holdings, Aurora Cannabis, Canopy Growth jumped between 3% and 10%.
Verano Holdings, Green Thumb Industries, Cresco Labs and Curaleaf Holdings and Goodness Growth rose between 5% and 14%.
Pot stocks tracker AdvisorShares Pure US Cannabis ETF gained 8.5%. It closed 21.2% higher on Wednesday following the news, clocking its best day since Oct. 6, 2022.
The recommendation was provided to the Drug Enforcement Agency who has the final authority on rescheduling and will now initiate its own review.
Still, some analysts said the rescheduling would not be able to address the banking or capital market access challenges for cannabis companies.
The SAFE Banking Act, a crucial legislation that would make it easier for the cannabis industry to access banking services, has failed to secure a Senate vote despite the House of Representatives passing it seven times.
"The main issue the industry will face revolves around the crucial fact that over the last two decades, dozens of states have developed their own cannabis laws (medical or recreational) in the absence of cohesive federal regulation. And rescheduling to Schedule III would not solve this mismatch," Bernstein analyst Nadine Sarwat said.
(Reporting by Arunima Kumar in Bengaluru; Editing by Sriraj Kalluvila)
