In a historic move on August 30, 2023, the U.S. Department of Health and Human Services (HHS) recommended reclassifying marijuana from Schedule I to Schedule III. This significant change carries major implications for cannabis multistate operators (MSOs) and the cannabis industry.
The Tax Relief for MSOs
Previously, MSOs, legal businesses operating in 40 states, were burdened with an 80% effective income tax rate due to their involvement with a Schedule I drug. With marijuana now rescheduled to Schedule III, they will be taxed like regular businesses, with a tax rate of around 20%. This change is set to supercharge MSOs’ free cash flows.
Additional Benefits for MSOs
The rescheduling brings further benefits. MSOs’ high-interest debt is expected to decrease, saving them millions in interest expenses. Moreover, this change could enable MSOs to list on major U.S. stock exchanges, potentially attracting billions in new investment.
Investing in the Cannabis Sector
To invest in a diversified portfolio of these promising MSOs, U.S. investors can turn to the AdvisorShares Pure US Cannabis ETF (NYSE: MSOS). This ETF offers an attractive opportunity, as the sector’s valuations still seem undervalued relative to the potential impact of the rescheduling and forthcoming catalysts.
The Road Ahead
The cannabis sector is on the cusp of exciting developments, including the passage of the Secure and Fair Enforcement Banking Act, increased listings on major U.S. stock exchanges, and institutional investment inflows. The AdvisorShares Pure US Cannabis ETF is well-positioned to capitalize on these opportunities, making it a compelling choice for investors.
Sven Franssen