The Marijuana Industry Hopes for New Highs

A flicker of hope for the weed business

For years, the dreams of the cannabis industry looked like they might go up in smoke, with the U.S. government classifying marijuana as a drug as dangerous as heroin. But the multibillion-dollar industry now has some hope that could change.

Shares in cannabis-related companies are soaring, as the Biden administration weighs easing federal restrictions on marijuana, though not completely decriminalizing it. The bet is that this will give the industry a new lease on life — though it shouldn’t expect big changes immediately.

What’s happening: The Justice Department said on Tuesday that it had recommended changing marijuana’s classification from a Schedule I drug (highly addictive with no medicinal use) to a Schedule III one (more like Tylenol with codeine). While the department can still prosecute offenders, it has already said doing so isn’t a high priority.

The news bolstered cannabis stocks. Shares in Tilray, a giant in the industry, jumped 39 percent on Tuesday, while those in Canopy Growth leaped nearly 79 percent. That’s welcome news for investors in both companies: Canopy Growth’s stock is down 97 percent over the past five years, while those in Tilray are down 95 percent.

New rules could unleash tax breaks that are unavailable for businesses that deal in Schedule I or Schedule II substances, possibly leading to lower prices and more hiring. It could also bolster investment: “We anticipate a surge in liquidity as sidelined capital enters the market, drawn by the potential for legal businesses to thrive,” Morgan Paxhia of Poseidon Asset Management said.

A big change would be whether financial giants will start working with cannabis companies. Service providers including Mastercard and brokerages don’t want to be involved in transactions involving federally prohibited substances. The re-entry of traditional financial services would be a huge boon for such companies.

It’s a decision that has been years in the making. President Biden ran for office in 2020 pledging to decriminalize marijuana and ease convictions over its use. It’s also not without controversy: Anne Milgram, the Drug Enforcement Administration’s administrator, raised concerns about the move.

The cannabis industry has also pushed back against existing federal laws. A group of companies has sued the Justice Department, arguing that the federal government was overstepping its constitutional authority over interstate commerce by restricting companies that operate entirely within states.

David Boies, the famed litigator representing those companies, said the Biden administration’s move was overdue. “It recognizes, as we have alleged, that there is no legitimate national interest in criminalizing marijuana legalized by the states,” he told DealBook.

Don’t expect big changes overnight, however. The Justice Department’s recommendation sets off a lengthy rule-making process including a public comment period, meaning final changes are far-off.

HERE’S WHAT’S HAPPENING

The police clear protesters from a Columbia building they had occupied. Dozens of pro-Palestinian demonstrators were arrested after university officials said that Hamilton Hall had been “vandalized and blockaded”; an encampment on the campus has also been cleared. Los Angeles police were called in at the University of California, Los Angeles, after officials said violent clashes broke out on campus.

Binance’s former C.E.O. is sentenced to four months in prison. Changpeng Zhao, who pleaded guilty to a violation of money laundering rules, received less than the three-year term that prosecutors had recommended. With a fortune that’s estimated at $33 billion, he may be the richest-ever federal inmate in U.S. history.

Elon Musk shut down Tesla’s entire electric vehicle charging team. About 500 employees at the unit that built the largest and most reliable charging network in the U.S. were laid off on Tuesday. The surprise decision raises questions about the future of a unit previously seen as key to Tesla’s dominant position in the market. Musk said on the social media platform X that Tesla would focus on expanding capacity at existing charging stations.

Investors punish Starbucks and CVS over poor quarterly sales. Shares in Starbucks were down more than 12 percent in premarket trading after the coffee giant reported worse-than-expected revenue and profits and lowered its financial forecasts. (Its stock has fallen 30 percent since Howard Schultz, its longtime C.E.O., left the company last year and Laxman Narasimhan took the helm.) And shares in CVS were down 12 percent after the pharmacy chain said higher medical costs accounted for falling profits and a lower earnings forecast.

The early winners of the A.I. race

Amazon’s big bet that artificial intelligence could be the foundation for its next era of growth seems to be paying off: The tech giant’s shares are up in premarket trading on Wednesday after its quarterly profit beat analysts’ expectations. Much of its growth came from its cloud computing business, which powers corporate A.I. use.

The strong results, along with those last week from Microsoft and Alphabet, show that investors are willing to tolerate big spending on A.I. — at least by companies providing the picks and shovels to build its infrastructure.

Amazon reported its best first-quarter results, with about $143 billion in overall revenue and about $10 billion in profit. More important is what happened at its cloud division, Amazon Web Services, which accounts for about a fifth of total revenue: Sales jumped 17 percent, to $25 billion, while operating income soared a whopping 84 percent to $9.4 billion.

The company didn’t disclose how much of that revenue came from A.I., but executives noted an increase in the availability of such services. (Amazon has invested billions in the hot A.I. start-up Anthropic, and it’s making the A.I. chatbot Q more widely available via A.W.S.)

Wall Street approves of some kinds of A.I. spending. Shares in Microsoft and Alphabet jumped after their earnings reports last week, but those in Meta slumped — despite all three announcing that they were going to spend a lot more on the technology. (So will Amazon: Brian Olsavsky, its C.F.O., told analysts on Tuesday that the $14 billion that his company spent on capital expenditures and leases this quarter would be the low point of the year.)

A big difference: Alphabet, Amazon and especially Microsoft reported gains in their cloud businesses, most likely because of increased corporate demand for the computing services to support their A.I. applications. Meta, whose A.I. applications are more focused on consumer-facing services, will probably take longer to see its huge investments in the technology pay off.

Others in tech are also looking at A.I. infrastructure for opportunities. Data centers are one area of interest. The private equity giant Silver Lake led a $6.4 billion investment this year in a major data center provider, while Alphabet, Amazon, Microsoft and Meta are also spending big on their own centers.

The energy demands of the industry are another focus: Sam Altman, OpenAI’s C.E.O., has backed a nuclear fusion start-up to provide more electricity to power A.I. hubs.

A tax fight breaks out on the Hill

Treasury Secretary Janet Yellen sparred with Republican lawmakers at a House hearing on Tuesday over the Biden administration’s latest tax plans, a fight that will hang over the November election.

The White House favors raising taxes on companies and wealthy Americans, having outlined increases in the budget proposal it released in March. President Biden also said last week that he would let the tax cuts that Donald Trump enacted in 2017 expire in December 2025 if he’s re-elected.

Investors are closely watching the tax debate. High government spending and an uptick in the issuance of Treasury bonds has many in the market worried about what growing federal deficits would mean for stocks. Others, however, are concerned that extending the Trump tax cuts could also hurt their investments.

Yellen argued that potential tax increases wouldn’t hurt the middle class. Republican lawmakers like Representative Jason Smith of Missouri, the chairman of the House Ways and Means Committee, claimed that Biden’s policy would harm families already squeezed by inflation. But Yellen said the tax increases wouldn’t apply to anyone earning less than $400,000.

A global tax initiative was another point of debate. Republicans said that such a measure would harm American companies. But Yellen, who helped broker an international minimum tax deal in 2021, argued that the administration was working on an exemption for the U.S.

She added that not joining could expose businesses operating overseas to retaliation by other governments.

Biden takes his economic pitch to voters

Polls have consistently shown that most Americans aren’t happy about President Biden’s economic management, even after he introduced some of the most consequential industrial policy decisions in generations.

A big challenge for Biden’s re-election campaign is to show how signature measures like the American Rescue Plan and the Inflation Reduction Act, which led to billions of dollars of federal money being spent across the country, have improved voters’ lives.

“The link between the resources themselves and anything that happens on the ground that’s visible to people is very opaque,” Robert Kraig, executive director of the progressive advocacy group Citizen Action of Wisconsin, told The Times.

Ron Klain, Biden’s former chief of staff, has said the president would connect more with voters if he spent more time talking about topics like groceries instead of bridges. But The Times’s Lydia DePillis reports that Biden administration officials are working hard to show voters in crucial battleground states like Wisconsin how his policies have helped — and why Democrats should get the credit.

Although no Republicans voted for the American Rescue Plan Act or the Inflation Reduction Act, they have often been on hand for events showing off the results.

So Democratic officials, both federal and local, are ramping up efforts to explain the money’s source. Treasury Secretary Janet L. Yellen visited Milwaukee in January, and Mr. Biden followed in March to highlight beneficiaries of new federal funding, including a $36.6 million overhaul of a central arterial street and investments in work force training. Energy Secretary Jennifer M. Granholm also visited in March to call attention to incentives that have fostered local manufacturing of clean energy equipment …

“This movie is still playing,” said Gene Sperling, the White House’s coordinator for American Rescue Plan implementation. “Doing the right policy is the important thing, and there’s still time to do better in telling this story.”

THE SPEED READ

Deals

Policy

• Donald Trump could face jail time after the judge overseeing his Manhattan hush-money case fined him for repeatedly violating a gag order. (NYT)

• Employees of ByteDance and TikTok are reportedly being interrogated by U.S. border agents about their access to American data and whether they are members of the Chinese Communist Party. (Forbes)

Best of the rest

• Inside an anti-Biden dinner hosted by Elon Musk and the entrepreneur David Sacks and attended by the likes of Rupert Murdoch, Peter Thiel and Michael Milken. (Puck)

• Paul Auster, the celebrated novelist who became one of the leading New York authors of his generation, died on Tuesday. He was 77. (NYT)

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