Rescheduling Is Paused, Not Dead: How We Trade $MSOS Now

Rescheduling Is Paused, Not Dead

Two weeks ago we called the dip an entry. The tape disagreed. $MSOS closed at $5.09 on September 29. It printed $4.52 the next day on 20 million shares against a 4.5 million average. It's $4.11 as we write this. That's a 19% drawdown on a procedural order. Not a ruling. Not a reversal. A judge pausing to read a brief.

The thesis hasn't changed. The risk management has. Both below.

The stay is procedural, and the record proves it

Marijuana Moment's October 13 newsletter led with a Dentons op-ed that says it plainly: this is a procedural pause, nothing more. We'd go further. The numbers inside the GAO reportargue for the government, not against it.

Start with what GAO found. It looked at 208 scheduling actions from 2020 through 2025. Ninety-five of those required an HHS evaluation. DEA requested and considered HHS's input in every one. Of the 84 that reached a final rule, DEA's decision matched the HHS recommendation 84 times. A perfect record. The opponents want to use a report documenting DEA's total deference to HHS science as proof that DEA can't follow HHS science on marijuana. Read that twice.

GAO's real complaint is narrower. Neither DEA nor FDA has comprehensive written procedures for how staff run these evaluations, and the FDA-NIDA memorandum of understanding dates to 1984. Both agencies agreed to fix it. GAO said nothing about where marijuana belongs. It didn't say any prior decision was wrong. It framed the gaps as something that “may pose a risk to the consistency” of future work if staff turn over. That's an internal-controls finding. It isn't a legal defect, and DEA told GAO as much: the Controlled Substances Act sets the legal requirements, and no statute requires the manuals GAO wants.

Now the order itself. Chief ALJ Derek Julius hasn't admitted the report. He hasn't reopened the record. He paused the case so the motion could be briefed, and he told the government to answer by October 13 in no more than 20 pages. The other hearing parties may file. Then he rules. Under DEA's own precedent, reopening a closed record takes a showing that the new evidence was unavailable before and is material to the issues in dispute. Unavailable, sure. Material is the fight. A process audit that never mentions marijuana is a hard sell as material to a marijuana rulemaking.

Two more things the panic missed. The April medical rescheduling rule isn't touched by any of this. It rests on 21 U.S.C. 811(d) and treaty obligations, with the HHS evaluation as support, and the D.C. Circuit refused to stay it on September 9. And the Justice Department's Office of Legal Counsel ruled in 2024 that HHS's two-part test for accepted medical use is valid, calling DEA's old five-part test impermissibly narrow. That OLC opinion is the written standard the opponents claim doesn't exist.

What it costs: time, not outcome

We'll be straight about the part that hurts. Dentons puts the best case for a final rule in the first quarter of 2027. Certification can't happen sooner than 25 days after the recommended decision is served, and Julius has no deadline for that decision. The crowd that expected rescheduling before the midterms (a survey this week had 70% of respondents there) is going to be disappointed on timing no matter how the motion goes. That's what's being priced at $4.11. The market has priced the delay and some of the hostile tail, on no filing and no ruling.

How we're trading it

Our standing rule in this sector hasn't moved: assume the news doesn't happen and trade around a core position. Core stays long. $TRLV and $GTBIF are still the cream, and nothing in a GAO process audit changes who has the best balance sheet and the cleanest tax posture.

What's new is the hedge. We're adding $MSOS January puts at the $4 strike, with the $3 strike as a cheaper second layer, sized to the decline we project in the negative scenario.

The sizing logic. Our hostile-tail target, where Julius admits the report and signals the no-written-standard argument has legs, is roughly $3.50. That's around the March lows. From $4.11 it's about $0.61 a share of damage, call it 15%. At $3.50 a $4 put carries $0.50 of intrinsic value. So on 10,000 core shares, covering the full modeled loss takes about 120 contracts. Scale down from there if you'd rather spend less on premium and eat part of the drawdown. The $3 strike pays nothing at $3.50. It only matters if the trade breaks through the March lows, which is why it's a small second layer and not the main hedge. If you carry $MSOX instead of $MSOS, remember it's a 2x daily product. You need roughly double the notional to get the same cover.

Ideally these puts expire worthless. That would mean the stock went up. January gives us runway through the ruling on the motion and, in the base case, through the recommendation itself, with room to cash the puts out before time decay finishes them. If the stay drags and the timeline slides past January, we roll. If the motion is denied and the gap fills, we sell the puts into the rally and recycle the premium into the core.

The 30% rule, as written in our gospel

Readers keep asking how we handle the upside, so here it is. Any move greater than 30% in our favor triggers the same sequence every time. We cut stock size by 60% and options size by 90%. We move stops up to 15% below the new level. Then we reload in tiers once price clears the initial move by another 15%.

From $4.11, a 30% move is about $5.34. If we get there, we sell 60% of the stock and 90% of the options into it, park stops near $4.54, and we don't rebuild until price is working through $6.14. That's deliberate. The reload sits above this year's high near $6. If the tape clears that, it's telling us something new. If it doesn't, we've banked the move and kept a core.

What we're watching today

The government's 20-page brief. Whether DEA fights to keep the record closed, or concedes the report in and argues it changes nothing. Either path works for the thesis. A fight tells you the agency thinks the recommendation is close. A concession tells you the agency thinks the report is harmless. What we don't want is silence past the deadline, because this tape has treated silence as bad news for two weeks. Friday's monthly expiration adds noise on top.

Paused isn't dead. Procedural isn't substantive. A 19% discount on a timing slip is the kind of setup we've been paid for in this sector before. This time we want to get paid with the puts on.

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Disclosure: We (the author and affiliated entities) are long $TRLV, $GTBIF, $GLAS, $MSOS and $MSOX, hold options expiring into 2027, and are adding $MSOS January puts as described above. This is not investment advice. Do your own work.