Cannabis stocks soared this year after the Department of Health and Human Services asked the US Drug Enforcement Administration to start reviewing its classification of cannabis from Schedule I to Schedule III. Cannabis is currently a Schedule I drug, along with heroin and LSD. The new designation would put it in the same group as anabolic steroids, testosterone, and ketamine (read: Cannabis Stocks & ETFs: Can the Recent Surge Continue?).

The move could potentially expand the market for marijuana, which is a multibillion-dollar industry in the United States and a cash crop in many newly legalized states. No wonder, this development pushed the Roundhill Cannabis ETF (WEED Quick QuoteWEED - Free Report) 32% higher this year, followed by 31% year-to-date gains in AdvisorShares Pure US Cannabis ETF (MSOS Quick QuoteMSOS - Free Report) , a 28.5% uptick in Amplify U.S. Alternative Harvest ETF and a 26.8% advancement in Subversive Cannabis ETF .

Benefits of Likely Schedule III Classification

A Schedule III classification could ease the banking restrictions, allowing businesses to have more straightforward access to banking services and attract more investors. The reclassification could alleviate some of the tax burdens and help shift public perception, further legitimizing the medical cannabis industry and potentially paving the way for broader acceptance and use of marijuana as a therapeutic agent.

More US States to Consider Legalization?

Additionally, a shift in the classification could provide momentum for more states to consider medical or recreational legalization, as it would signal a change in the federal government's stance on the drug's potential risks and benefits. Nearly 40 states in the United States have already legalized marijuana in various capacities.

Germany to Legalize Cannabis in 2024?

On Feb 23, 2024, German legislators gave their nod to a government proposal aimed at relaxing regulations on cannabis. This decision sets the stage for potential decriminalization of small quantities of marijuana and permits individuals in "cannabis clubs" to purchase it for recreational use. The move would take effect from April 1. Hence, pot stocks surged meaningfully last week as Germany could become the largest country in Europe to legalize cannabis in 2024.

Bullish Long-term Growth Potential

Leading cannabis data provider BDSA is forecasting that the global legal cannabis market could amass $55 billion in sales in 2027, per a Forbes article. Showing strength from the Midwest and Northeast, the United States is estimated to pull in $43 billion for the country's legal market, with $35 billion of those sales coming from the adult-use channel. The Cannabis market worldwide is projected to reach a revenue of $60.79 billion in 2024 (per statista). It is expected to log an annual growth rate (CAGR 2024-2028) of 14.06%, resulting in a market size of $102.90 billion by 2028.

Any Wall of Worry?

Investors should note that Canada is one of the few nations with legal recreational marijuana access, a milestone achieved five years ago.However, despite the initial optimism surrounding the industry, it faces several challenges.

Experts and insiders attribute the industry's struggles to excessive regulation, as Canada seeks to balance public health concerns with fostering a strong cannabis sector. Additionally, oversupply coupled with a saturated market complicates the situation.

With limited scopes for international sales due to Canada's unique federal stance on cannabis, domestic producers find themselves constrained in their revenue-generating opportunities beyond the country's borders.