A employee sets up Florist Farms cannabis products on the primary day of legal recreational marijuana sales on the Housing Works Cannabis Co. in Recent York, on Thursday, Dec. 29, 2022.
Jeenah Moon | Bloomberg | Getty Images
This week, the Department of Health and Human Services asked the Drug Enforcement Agency to consider easing restrictions on marijuana upon a review of its classification under the Controlled Substances Act.
It could possibly be a big catalyst for an industry hemmed in by federal regulations whilst legalization picks up on the state level.
Marijuana stocks were higher Wednesday on the news. Aurora Cannabis, Cover Growth and Tilray Brands were amongst those to see jumps. All of them jumped again Thursday.
Because the Seventies, marijuana has been listed alongside heroin and LSD as Schedule I drugs, or substances that authorities say don’t have any accepted medical use and a high potential for abuse. Today, marijuana has remained on this category – rating higher than fentanyl, cocaine and methamphetamine – despite there being favorable momentum for pot in scientific research and state laws.
The DEA will consider moving marijuana down to a Schedule III drug, alongside ketamine, anabolic steroids and testosterone as a substance that has moderate to low potential for physical or psychological dependence. The advice, nonetheless, won’t de-schedule marijuana.
Cultivation, production and sales would still be in violation of federal law. Marijuana is legal in 39 states medically and 23 states recreationally.
What’s next for marijuana policy?
As a part of the advice process, HHS conducted a scientific and medical evaluation that can help authorities come to a final decision on the matter.
A choice is probably going to come before the 2024 presidential election, Roth MKM analyst Scott Fortune wrote in a Thursday note to clients.
“Historically, the DEA has never gone against a scheduling advice from the HHS,” Fortune added.
The DEA will consider marijuana’s reclassification under three criteria: Its potential for abuse, its potential for medical use, and the extent to which its unsafe or addictive.
Regulators have previously used the second criterion to uphold marijuana’s Schedule I classification, but doing so now may prove difficult, said Fortune, with medical marijuana programs existing in nearly 40 states across the nation.
Once the DEA comes to it decision, it will submit its own advice in the shape of a proposal to the attorney general, who will then make his final ruling.
What does it mean for the weed industry?
If marijuana moves down to a Schedule III substance, it will effectively ease quite a few restrictions holding the sector back.
The most important boon will are available the shape of recent tax opportunities. Currently, enterprises dealing in Schedule I substances aren’t allowed to write expenses off their federal tax returns under an Internal Revenue Service code often known as 280E.
This has been a hindrance for a lot of cultivators, processors and retailers struggling to remain profitable because the industry sees a slowdown in sales.
“The removal of 280E may have a widespread material impact on the financial performance of each company within the industry, large and small, private and non-private,” said Jeff Schultz, a marijuana attorney at Foley Hoag.
What’s more, the potential rescheduling will allow for interstate commerce. While many states have legal markets inside their borders, transporting Schedule I substances across state lines in illegal, leading to a glut of marijuana in some states.
The move will moreover expand potential for research within the sector, entice investors back amid a capital crunch, and possibly return value to publicly traded marijuana stocks.
The rescheduling, nonetheless, won’t unlock banking services for the industry, which has been kept out of traditional banking and loans due to marijuana’s federal standing. Schedule III drugs still present a risk for banking institutions as long as federal laws remain unchanged.
A bill called the Secure and Fair Enforcement Banking Act, or SAFE, will remove this burden and is making its way through Congress.
Is federal pot legalization on the horizon?
Senate Majority Leader Chuck Schumer, D-Recent York, said while that is a very important step forward for the industry, the top goal is ending federal prohibition.
“HHS has done the proper thing and DEA should now quickly follow through on this vital step to greatly reduce the harm brought on by draconian marijuana laws,” Schumer said in an announcement Thursday. “There continues to be rather more that needs to be done legislatively to end the federal prohibition on cannabis and roll back the War on Drugs.”
Industry executives echoed Schumer’s feelings.
“Federal cannabis reform is long overdue, and today’s news brings us closer to the Biden administration declaring an end to the U.S. government’s failed war on cannabis,” said David Goubert, CEO of multi-state dispensary operator Ayr Wellness.