Cannabis use is up 46% among American seniors as Trump signs an order to reclassify marijuana. Are you positioned to profit if pot stocks surge?

This comes at a time when cannabis use among boomers is, well, booming. The number of Americans aged 65+ using cannabis for medical purposes rose from 4.8% in 2021 to 7% in 2023, a 46% jump in just two years according to a NYU School of Global Public Health study published in JAMA Internal Medicine (1).

Marijuana is currently classified as a Schedule I substance under the Controlled Substances Act, a category that also includes heroin, LSD and ecstasy (which are considered to have a high potential for addiction or abuse, with no recognized medical use).

The executive order aims to reclassify marijuana as a Schedule III drug. Drugs that fall under this category, which include Tylenol with codeine and anabolic steroids, are considered to be less addictive and have potential medical uses.

A growing demand from seniors, opportunities for scientific research and a clear federal framework could serve as a catalyst for investors. But it’s still a volatile market. After all, reclassification doesn’t mean pot is fully legal at a federal level and it would still be treated as a controlled substance.

Is marijuana a growing market?

States have a confusing patchwork of laws around the use of marijuana. Some have fully legalized it, while some have decriminalized it and/or allow it for medical use. In some states, it’s still fully illegal (2).

Overall, there’s growing support at a state level, in line with changing consumer sentiment, with support for the legalization of marijuana rising from 36% in 2005 to 70% in 2023 (3).

Not only is cannabis use surging among seniors, but the NYU research finds that cannabis users tend to be married, college-educated and have high incomes (4). “The researchers also found significant increases in cannabis use by older adults with chronic diseases — and notably, those with multiple chronic conditions — including heart issues, diabetes, hypertension, cancer and chronic pulmonary obstructive disease,” according to NYU (5).

That means there’s a potentially stable consumer base, particularly for medical and wellness cannabis products. If reclassification helps to lower risk, expand markets and improve liquidity, investors may see a new entry point.

Understanding the risks of investing in marijuana

The cannabis sector has a history of volatility. Many retail investors were burned in previous hype cycles. Those once-hyped cannabis stocks stagnated, leading to disillusionment in the sector.

While volatility is common in emerging markets, the cannabis sector has some unique challenges. For example, because of marijuana’s classification as a Schedule I drug, cannabis companies aren’t eligible for regular business deductions, which means they suffer high tax penalties that eat away at margins.

The move to Schedule III would significantly ease those tax burdens. But there’s still a need for banking reform, uplisting to major exchanges and broader institutional support.

Cannabis companies still can’t trade on the NASDAQ or NYSE. As a result, they remain on over-the-counter (OTC) markets, which are generally considered riskier and more volatile than centralized exchanges.

“Because the federal status in the U.S. limits many mainstream banks and brokers from serving cannabis companies, many of these firms list in Canada, OTC or on smaller exchanges, thereby reducing liquidity, analyst coverage and institutional access,” according to the Business of Cannabis. “That creates a market in which smaller, less liquid stocks trade on sentiment proxies rather than fundamentals” (6).

Even if marijuana is reclassified, it won’t make banking problems go away.

“Until there is full federal legalization, lending and providing treasury services to cannabis companies will continue to be a banking hurdle, particularly for the larger institutions that need to maintain their FDIC ensured status,” Samantha Gleit, a partner at Feuerstein Kulick, told Reuters (7).

The SAFER Banking Act would allow cannabis companies to access traditional financial services and reduce risk for financial institutions, lenders and insurers. The Act, which has bipartisan support, has not yet passed into law.

Mark Lewis, president of specialty payments with Lüt, a mobile payment app and payment processor, told Investing News Network that while the moment is “historic,” rescheduling is just the beginning. “Until the SAFE Banking Act or 280E is passed, operators will still have to jump through challenging financial hoops to pay their staff, bills or garner investment” (8).

Should you invest in marijuana?

Demographic demand and regulatory change could shape a new chapter for cannabis investing. Certain segments, such as senior-focused wellness brands and biotech firms developing cannabinoid therapies, could benefit from reclassification (perhaps more so than broader consumer-recreational players).