Overheard from the US Open: “Court 17 definitely smells like Snoop Dogg’s living room.” You may be part of the group against legalizing cannabis or the one all for it — but either way, there’s no denying the industry’s rapid ascend (and collapse).

• In a Gallup survey, half of Americans said they tried cannabis, and half live in states where it’s legalized.
• Last year, Americans spent more on legal cannabis ($30B) than chocolate ($20B).

Despite its growth, cannabis companies seem to be in a never-ending doom cycle. This week, the industry got a boost when a top US health official recommended that the Drug Enforcement Agency (DEA) reclassify cannabis as a Schedule III drug from a Schedule I drug — which is on the same level as heroin.

But rescheduling doesn’t imply cannabis will be legalized at a federal level. For the US Cannabis Council’s Edward Conklin, it would be seen as one of the most significant national cannabis reforms (BBG). And it’s up to the DEA to make the final decision.

Industry running on vapor

While the news sent the industry soaring, investors have been disappointed countless times. The AdvisorShares Pure US Cannabis ETF (NYSE:MSOS) is down nearly 87% from its peak in 2021 — and during that decline, the industry has gone through repeated cycles of positive developments, followed by a wave of bad news:

• In July, Mastercard moved to ban cannabis transactions on debit cards — forcing the industry further into cash transactions.
• Oversupply in the industry has sent cannabis prices tanking nearly 40% in the past three years.

Being illegal on a federal level, companies lack access to banking services and products can’t move between states — which has dragged down growth and profitability. After racking up major losses, many cannabis companies have failed in recent years, while one of the larger players has been diversifying into alcohol.

Last month, Tilray (NASDAQ:TLRY) bought eight beverage brands from Anheuser-Busch for $85M, becoming the fifth-largest US craft brewer at 5% market share. They’ve also been investing in the European market, where Germany passed a landmark bill to legalize cannabis last month. This has given the industry some momentum on both sides of the pond, but it’s uncertain how long the high will last.