Cannabis industry views DEA news as a ‘positive step,’ but more work lies ahead

Corporate cannabis, small business owners, and advocates alike had a lot to say on Tuesday, after the U.S. Drug Enforcement Administration confirmed it will put forth a proposal to reschedule cannabis from its current Schedule I classification to Schedule III under the Controlled Substances Act.

The proposed rule, which would recognize cannabis as having a lower potential for abuse compared to its current status, will have to first undergo a review by the White House Office of Management and Budget and then a public comment period before the DEA ultimately publishes out a final rule.

Still, while the process could end up playing out in arduous fashion, as it often does in the government, folks are just glad the feds are making moves.

Market booms in response

Cannabis stocks regained some steam on Tuesday following the news. Both the AdvisorShares Pure US Cannabis ETF (MSOS) and Amplify U.S. Alternative Harvest ETF (MJUS) rose by more than 20% in afternoon trading.

Individual cannabis stocks with smaller market caps and corporate giants alike also posted big gains. New York-based multistate operator Curaleaf Holdings (OTCQX: CURLF) (TSX:CURA) climbed 21% to reach a new 52-week high, and Florida-based Trulieve Cannabis Corp. (OTCQX: TCNNF) surged nearly 40% by the close.

Interest in the sector has been waning, noted Morgan Paxhia, managing director of Poseidon Investment Management. But this move could reinvigorate it.

“Pessimism and skepticism is plentiful as many have written off the sector focusing on the wrong things like low quality/speculative companies or non-catalysts like SAFER Banking,” he said. “Rescheduling is likely to bring a vibrant return of investor interest that could quickly move the sector back to robust optimism.”

Is it enough?

But not everyone was as enthusiastic as the stock market on Tuesday. For some, the move falls significantly short.

“This is a positive step forward for federal cannabis policy, however it is a rather modest step given the strong support among American voters for comprehensive cannabis reform,” said Matthew Schweich, executive director of the Marijuana Policy Project.

Rescheduling doesn’t eliminate the “criminalization of medical cannabis patients and cannabis consumers under state laws,” he said. So work still remains to move the industry forward.

That sentiment was echoed by Gretchen Gailey, co-founder of the American Cannabis Collective: “While this move is undoubtedly a huge win for patients, we must not lose sight of the broader context. Moving cannabis to Schedule III does not mark the end of prohibition. We caution against any attempts to overstate the significance of this decision.”

However, most people agree that once the final rule is published, plant-touching businesses will see immediate results for their bottom lines, and the industry will have more opportunities for growth.

“Reclassifying cannabis from a Schedule I to a Schedule III means so much for our dispensary and New Jersey,” said Alyza Brevard Rodriguez, owner of The Other Side Dispensary in Jersey City.

“It’s not only the potential tax benefits and financial relief through write-offs, especially during the crucial early years of opening a business, but it also opens doors for more research opportunities, reducing stigmatization, and legitimizing the industry further.”

More industry reactions

Shawn Hauser, Partner, Vicente LLP

The DEA’s proposed rule is a major step forward toward the ultimate goal of ending federal cannabis prohibition. This will be a historic rulemaking process to formalize the DEA’s proposed reclassification. It’s likely the best outcome possible, given the realities of the federal administrative review process.

That the federal government considered the widespread medical use in state medical marijuana programs underscores the impact of state reforms that have helped millions of patients. This is a very positive step towards the end of prohibition and for public health.

This historic action by the Biden administration has the potential to embolden Congress to finally pass legislation that federally legalizes and regulates cannabis for medical and adult use.

Sundie Seefried, CEO, Safe Harbor Financial

From a banking and lending perspective, we believe that the reclassification of cannabis will broaden lending opportunities for cannabis businesses, leading to access to lower interest rates, increased access to capital and improved financial stability across the industry.

This newfound access to traditional financing channels has the potential to stimulate growth, innovation and compliance efforts within the industry, ultimately fostering economic development and job creation.

Furthermore, the global implications of potential rescheduling cannot be overlooked. Elevating cannabis to Schedule III demonstrates the United States’ leadership on an international scale, and has the potential to positively influence agreements and international treaties with organizations like the United Nations and World Health Organization.

This shift could hold significant weight, especially for other countries seeking to challenge current classifications and legalize cannabis sales.

Anthony Coniglio, CEO, NewLake Capital Partners

This rescheduling carries significant implications for the entire cannabis landscape. Firstly, it will alleviate the burdens imposed by 280E tax regulations, bolstering the credit quality of cannabis operators, including those within NewLake’s portfolio.

We project that our tenants stand to collectively save over $400 million annually in taxes, leading to increased cash flows for their businesses.

Moreover, this pivotal move by the federal government is poised to stimulate additional investment in the sector, potentially enabling operators to strengthen their balance sheets, thus enhancing the industry’s credit quality, including our tenant base.

Sarah Gersten, Executive Director, Last Prisoner Project

Last Prisoner Project believes that complete descheduling and full legalization of cannabis is a necessary step towards correcting past injustices and creating a fair and equitable criminal legal system.

We will continue to work tirelessly to ensure that individuals burdened with past cannabis convictions have their records expunged and that all cannabis prisoners are released, regardless of the federal scheduling decision.

Despite not achieving full legalization, we must use this historic moment to push the fight for cannabis justice forward and we intend to do so by leveraging this reclassification for broader criminal legal reforms as outlined here.

Matt Darin, CEO, Curaleaf

This ruling reflects evolving attitudes towards the plant, recognizing its well-documented therapeutic value and medicinal applications. It’s very clear that the country is ready for this step, given that 92% of Americans are now in support of legalization in some form.

As the cannabis industry undergoes regulatory transformations, Curaleaf remains committed to collaborating with regulatory authorities, industry members, and the broader community to ensure the responsible and sustainable growth of the cannabis sector.

The future for the cannabis industry is real and we look forward to seeing what 2024 has in store.

Marc Beginin, CEO, Prodigy Processing Solutions

The reclassification invites pharmaceutical companies into the mix, driving research and development, and necessitating FDA approval for cannabis-derived products which will require a prescription to comply with Schedule III.

The advent of federal regulation is set to substantially enhance both product quality and consumer safety, potentially redefining the medical marijuana industry, which has until now been monitored only by local health departments that lack the subject matter expertise and broad reach of the FDA.

The FDA’s regulatory acumen will play a crucial role in fulfilling the need for standardization and stringent consumer safety standards that has long been overlooked.

Wendy Bronfein, Co-founder and Chief Brand Officer, Curio Wellness

While this move to Schedule III could provide much-needed relief from the crushing tax burden of 280E, we must seek a balance between exercising federal oversight and enforcement responsibilities while preserving each state’s ability to determine the best approach to cannabis within its borders.

I firmly believe the industry should continue advocating for the de-scheduling of cannabis; for as long as cannabis is listed as a scheduled substance, there will always be an inherent conflict between federal and state law. The way to eliminate stigma and legitimize the legal cannabis industry is to fully remove cannabis from the Controlled Substances Act.

While the pending DEA announcement is historic, we must continue advocating for policies that create more certainty for the cannabis industry and consumers so they can trust the products they’re consuming are safe.

Adam Terry, CEO, Cantrip

Rescheduling won’t legalize cannabis or let a doctor prescribe it, but it will allow existing marijuana companies to be taxed like any other business — essentially a huge investment in the overall sector by the government by way of tax relief.

It doesn’t affect Cantrip directly as a hemp company, but improves the overall economic health of the industry and continues to inch towards legitimization in the eyes of the public.

Brady Cobb, CEO, Sunburn Cannabis

Cannabis has never belonged on Schedule I with drugs like cocaine and heroin — or as President Biden noted, on a more restrictive schedule than fentanyl — and a move to Schedule III is the first real step towards meaningful reform.

A tremendous amount of work has been done by so many people, and while I’ve been critical of the Biden administration on the timing of this move, credit is due for actually making it happen. Onward.