CGC Canopy Growth Corporation

By Will Feuer

Shares of companies with ties to the marijuana market, from cannabis retailers to purveyors of hydroponic equipment and the owners of real estate used by growers, surged on Thursday after President Joe Biden called on federal regulators to review how the drug is classified.

The president said Thursday he is asking the Department of Health and Human Services and the attorney general to review the status of marijuana as a schedule 1 controlled substance, a category that also includes heroin and LSD. Mr. Biden's remarks could be a major step toward decriminalizing marijuana, which remains illegal under federal law even though 19 U.S. states and Washington, D.C., have legalized adult use for recreation.

The rescheduling of marijuana in the U.S. could have an immediate impact on how investors value companies such as Canopy Growth Corp., Curaleaf Holdings Inc. and Tilray Brands Inc., MKM analyst Bill Kirk said in a research note. Shares of such companies have been hammered over the past year as an oversupply of marijuana in North America weighs on the average selling price.

But Mr. Kirk said Mr. Biden's remarks could breathe some life into the sector.

"It will be hard for people to be short the sector," he said, adding that cannabis companies with operations confined to Canada could look to push rapidly into the U.S. in the wake of a rescheduling of the drug at the federal level.

Shares of Canopy, which sells cannabis in Canada and 13 other countries but not in the U.S., where it only sells hemp and CBD products, powered more than 20% higher in intraday trading Thursday and were up another 5% in after-hours. Aurora Cannabis Inc. stock finished the day more than 7% higher and traded 10% higher in after-hours.

Nasdaq-listed shares of Tilray, another cannabis company that mostly operates in Canada, jumped 31%, and were up another 11% after the market closed. Shares of High Tide Inc. rose 7% and were up another 3% in after-hours trading.

High Tide Chief Executive Raj Grover called Mr. Biden's remarks "a game changer.

"De-scheduling would allow a Nasdaq-listed company like High Tide to begin selling cannabis in legal states," he said.

Shares of Flora Growth Corp., which grows marijuana and operates an e-commerce business that sells CBD and other federally legal products in the U.S., jumped 16% in intraday trading and rose another 15% to 90 cents a share in after-hours.

Chief Executive Luis Merchan said the rescheduling of marijuana in the U.S. could pave the way for the free flow of cannabis globally. Regulatory issues in the U.S. and other countries are the single biggest factor confronting the industry, he said.

Many companies in the space over-invested as they prepared for federal legalization in the U.S., which has yet to come, according to Mr. Merchan. More free flow of supply around the world will bring it into balance with demand, he said.

Other companies that don't directly grow or sell marijuana themselves got a boost, too.

Shares of Innovative Industrial Properties Inc., a real-estate investment trust that owns and manages properties for state-licensed cannabis companies, closed the day more than 4% higher at $96.28. The stock, down 63% so far this year amid a glut of marijuana in the U.S., rose another 1% in after-hours trading.

Shares of gardening company Scotts Miracle-Gro Co., which has a business unit devoted to supplying the marijuana cultivation industry, finished the day almost 4% higher after falling more than 70% so far this year.

On the other hand, the news appeared to weigh on shares of SHF Holdings Inc., which recently went public through a merger with a special-purpose acquisition company. Shares of the company, which provides financial services to the cannabis industry, a space that large banks have been hesitant to enter, finished the day almost 3% lower.

"This will essentially have no effect on the business of cannabis at this point," Chief Executive Sundie Seefried said. "Of course, I'm encouraged by President Biden's actions today, and would further request that Congress remove all barriers to banking and financing in the legal cannabis industry so that cannabis businesses can be integrated into our transparent, accountable and taxable financial system."

Write to Will Feuer at Will.Feuer@wsj.com

(END) Dow Jones Newswires

October 06, 2022 19:32 ET (23:32 GMT)

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