Greener Implications: Cannabis Industry on the Edge of Transformation
Cannabis Reclassification Developments
Cannabis stocks and ETFs are lighting up the headlines, as a potential policy shift could redefine the cannabis industry.
Key Developments: A Federal Shift in Motion
U.S. President Donald Trump recently confirmed that his administration is considering rescheduling marijuana from Schedule I to Schedule III. This move would reduce regulatory burdens by formally recognizing cannabis' medical use and move cannabis out of the same category as heroin and LSD. The reclassification would mark a significant shift in federal policy, aligning more closely with the growing number of states that have legalized cannabis for medical or recreational use.
This reclassification would be a watershed moment for the industry — one that dramatically alters the business environment for cannabis operators and investors alike.
Why This Matters - Implications of Reclassification
The potential shift from Schedule I to Schedule III carries wide-reaching implications:
- Tax Relief: Cannabis companies currently pay taxes on gross revenue due to IRS Code 280E. Reclassification would allow standard business deductions, improving profitability and freeing up capital.
- Banking Access: Many banks avoid cannabis clients due to federal restrictions. Rescheduling could open the door to broader financial services, payment processing and access to the capital markets.
- Institutional Investment: Regulatory barriers have kept institutional investors on the sidelines. A Schedule III classification could unlock significant inflows from large asset managers.
- Medical Legitimacy: Reclassification would expand research opportunities into cannabis’s therapeutic potential. Cannabis contains over a hundred cannabinoids, however only two, THC and CBD, have been widely studied.1
- M&A Activity (Mergers and Acquisitions): We believe consumer goods and pharmaceutical companies are likely to pursue acquisitions, leveraging their distribution networks to enter a fast-growing market.
State Momentum Meets Global Opportunity
While federal policy has lagged, state-level legalization has marched forward. Medical, adult-use, and recreational markets continue to expand across the U.S., with cannabis tax revenue now surpassing alcohol in nine states — including California.2
Globally, momentum has been building. Germany legalized adult-use cannabis in April 2024.
The Bottom Line
The global cannabis market is expected to show an annual growth rate (CAGR 2024-2028) of 14%, resulting in a market volume of USD $102.9 billion by 2028.3 With consumer support at 70%, and regulatory winds shifting, the industry appears poised for a new era of growth.2
Today, we’re seeing a convergence of political will, potential regulatory reform, and consumer demand that could reshape the investment landscape. Despite the hurdles ahead, the investment opportunity stands out. Those willing to navigate the evolving landscape may benefit from early exposure — well ahead of institutional capital.
Related Amplify ETFs positioned for growth potential during an industry transformation:
- CNBS: Amplify Seymour Cannabis ETF
CNBS offers a strategic, actively managed approach for exposure across the U.S. cannabis ecosystem including cannabis: plants, support, and ancillary businesses.
- MJ: Amplify Alternative Harvest ETF
MJ seeks to track the global cannabis industry benefitting from global medicinal and recreational cannabis legalization initiatives.
Additional Resources:
1Understanding the Medical Chemistry of the Cannabis Plant is Critical to Guiding Real World Clinical Evidence - PMC (nih.gov)
2https://flowhub.com/cannabis-industry-statistics
3Statista U.S. Cannabis Outlook. CAGR is the compound annual growth rate.
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the prospectus at AmplifyETFs.com. Read the prospectus carefully before investing.
Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns.
CNBS: The Fund is subject to management risk because it is actively managed.
Cannabis companies may face competitive pressures, limited banking access, legal and regulatory challenges, and rely heavily on permits for research cultivation, and distribution.
Narrowly focused investments typically exhibit higher volatility. The possession and use of marijuana, even for medical purposes, is illegal under federal and certain states’ laws, which may negatively impact the value of the Fund’s investments. Use of marijuana is regulated by both the federal government and state governments, and state and federal laws regarding marijuana often conflict. Even in those states in which the use of marijuana has been legalized, its possession and use remains a violation of federal law. Federal law criminalizing the use of marijuana pre-empts state laws that legalize its use for medicinal and recreational purposes. Cannabis companies and pharmaceutical companies may never be able to legally produce and sell products in the United States or other national or local jurisdictions.
The Fund’s investments will be concentrated in an industry or group of industries to the extent that the Index is so concentrated. In such event, the value of the Fund’s shares may rise and fall more than the value of shares of a fund that invests in securities of companies in a broader range of industries. The consumer staples sector may be affected by the permissibility of using various product components and production methods, marketing campaigns and other factors affecting consumer demand. Tobacco companies, in particular, may be adversely affected by new laws, regulations and litigation. The consumer staples sector may also be adversely affected by changes or trends in commodity prices, which may be influenced or characterized by unpredictable factors.
Amplify ETFs are distributed by Foreside Fund Services, LLC.
Carefully consider the Funds’ investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in Amplify Funds statutory and summary prospectus, which may be obtained by calling 855-267-3837 or by visiting AmplifyETFs.com. Read the prospectus carefully before investing.
Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns.
Amplify ETFs are distributed by Foreside Fund Services, LLC.