Joe Biden lights up marijuana stocks

The wild ride of marijuana investing got a boost this week when President Biden announced he was pardoning thousands of people convicted of marijuana possession under federal law.

Biden, who doesn’t have the authority to legalize marijuana at the federal level, also instructed the secretary of Health and Human Services and his attorney general to look into declassifying and potentially legalizing cannabis.

While the unexpected announcement was seen by some as a blatant political strategy leading up to the midterm elections, investors took it as a sign that federal decriminalization of pot is on the doorstep.

The news Thursday produced an immediate reaction among the small and struggling universe of publicly traded funds offering exposure to the marijuana industry.

[More: High-flying cannabis ETFs]

AdvisorShares Pure US Cannabis ETF (MSOS), which is down more than 50% this year, gained 34% through spiking trader volume Thursday after Biden’s announcement.

The global version of AdvisorShares Pure Cannabis ETF (YOLO), which was down nearly 58% this year, saw a one-day spike of more than 26%.

“A lot of money came into these funds [Thursday], and the last couple of hours was pretty intense,” said Jason Wilson, cannabis research and banking specialist at ETFMG, which manages four cannabis ETFs, the largest of which, ETFMG Alternative Harvest ETF (MJ), is down more than 46% this year and gained nearly 20% on Thursday.

“I think there’s expectations that something is going to happen regarding cannabis legalization,” Wilson said. “We’ve seen this divide between simple and complex reform closing, and this [Biden pardon] is a huge step.”

While marijuana use remains illegal at the federal level, individual states gradually have been passing laws to make it legal for a range of uses, from medical to recreational. Currently 41 states, along with the District of Columbia and Puerto Rico, allow medical marijuana programs. Twenty-three of those states have either decriminalized marijuana or have full adult-use programs, according to The Cannigma.

But despite projections for $28 billion in legal cannabis sales this year in the U.S., it's still viewed as a dicey area to tread because without federal legalization the industry is hamstrung by banking restrictions that can limit growth.

“Everyone is talking about this everywhere, but the last thing anyone wants is to blaze into something that may go up in smoke,” said Vance Barse, founder of Your Dedicated Fiduciary.

“The optics of Biden’s move are clearly there given the forthcoming election, but it’s still important for advisers and investors to manage any expectations to avoid becoming dazed and confused by any asset class,” Barse said.

Todd Rosenbluth, head of research at VettaFi, echoed some of those same sentiments regarding the potential to chase performance when it comes to cannabis investments.

“A few years back there was a rush to launch marijuana-focused ETFs, and investors were optimistic that a newly elected Biden administration could make policy changes supportive of the shares inside the funds,” he said. “However, sentiment had weakened in 2022 and the ETFs were down sharply. Given the changing environment, an active approach might add further value.”

For the extra bullish cannabis investor, there are even a few leveraged ETFs.

The AdvisorShares MSOS 2 Times Daily ETF (MSOX), which was launched in August, spiked nearly 70% Thursday.

The ETFMG 2 Times Alternative Harvest ETF (MJXL) is down 78% this year and gained 32% on Thursday.

For those less enthusiastic about the prospects for weed, there’s the ETFMG 2 Times Daily Inverse Alternative Harvest ETF (MJIN), which is up 36% this year but fell by 31% on Thursday.