What Rescheduling Marijuana Means For The Cannabis Industry

Forbes Daily Briefing

2 May 202405:21

Summary

TLDRIn a significant reform, the US Drug Enforcement Administration (DEA) is set to reclassify marijuana from a Schedule I to a Schedule III drug, aligning it with substances like ketamine and anabolic steroids. This move follows President Biden's request for a review of marijuana's federal scheduling and the Department of Health and Human Services' conclusion that cannabis has legitimate medical benefits. The change could reduce the tax burden on cannabis companies, which currently face an effective tax rate of around 80% due to punitive measures. While the proposal is not final and requires further approval, it has already energized the cannabis industry, with some stocks surging by 25%. However, the reclassification does not resolve banking issues for the industry or allow US-based companies to list on major stock exchanges. It also raises questions about federal oversight and the need for further regulatory clarity.

Takeaways

📜 The US Drug Enforcement Administration (DEA) has proposed reclassifying marijuana from a Schedule I to a Schedule III drug, marking a significant change in marijuana reform.
🔍 Schedule III classification includes drugs like ketamine, Tylenol with Codeine, anabolic steroids, and medication for opioid use disorder, buprenorphine.
🚀 This move is the most substantial shift since marijuana was made illegal by the Controlled Substances Act in 1970.
🇺🇸 President Biden requested a review of marijuana's federal scheduling in October 2022, and by August 2023, the Department of Health and Human Services (HHS) recommended reclassification.
💬 Biden emphasized in a State of the Union Address that no one should be jailed for using or possessing marijuana.
✅ The proposal to reclassify marijuana has energized the cannabis industry, with some stocks rising by 25% shortly after the announcement.
💰 The reclassification could greatly impact taxes for cannabis companies, as they would no longer be subject to the punitive tax measure under U.S. Code 28E.
📈 The effective tax rate for most cannabis companies is around 80% of gross revenue, which could change with the reclassification.
🏛 The change to Schedule III is seen as a step towards federal legalization and could facilitate further cannabis reforms.
🏦 Despite the reclassification, it does not resolve banking issues for the cannabis industry or allow U.S.-based companies to list on major stock exchanges.
❓ There are still unanswered questions regarding the impact on state-licensed cannabis companies and whether they need new licensing to comply with future regulations.

Q & A

What is the historic move by the US Drug Enforcement Administration regarding cannabis?
-The US Drug Enforcement Administration (DEA) has decided to end its ban on cannabis by reclassifying it from a Schedule I narcotic to a Schedule III drug, which is considered less dangerous.
What is the current status of marijuana under the Controlled Substances Act of 1970?
-Under the Controlled Substances Act of 1970, marijuana is currently classified as a Schedule I narcotic, alongside drugs like heroin and LSD.
What is the significance of reclassifying marijuana to a Schedule III drug?
-Reclassifying marijuana to a Schedule III drug would mean that it is recognized as having some legitimate medical benefits and is less dangerous than Schedule I substances. This is the most significant change in marijuana reform since it was outlawed in 1970.
What was President Biden's request regarding the scheduling of marijuana in October 2022?
-President Biden asked the Department of Health and Human Services and the Attorney General to expeditiously review how marijuana is scheduled under federal law.
What was the conclusion of the Department of Health and Human Services' review on marijuana?
-The Department of Health and Human Services concluded that cannabis has some legitimate medical benefits and recommended to the DEA that marijuana be reclassified as a Schedule III drug.
What did President Biden declare in his State of the Union Address regarding marijuana?
-President Biden declared that no one should be jailed for using or possessing marijuana.
What is the current status of the proposal to reclassify marijuana?
-The proposal is not yet final. It must first clear the White House Office of Management and Budget and undergo a public comment period.
How did the news of marijuana reclassification impact the cannabis industry?
-The news immediately electrified the $28 billion cannabis industry, with some pot stocks going up by 25% within hours of the Associated Press report.
What is the most profound impact of the DEA's policy change on licensed cannabis companies?
-The most profound impact would be on taxes. The move from Schedule I to Schedule III would mean that cannabis companies will not have to file under US Code 28E, which bans most deductions for drug traffickers, effectively lowering their tax rates.
What is the current federal tax situation for cannabis companies under Schedule I classification?
-Under Schedule I classification, cannabis companies are subject to US Code 28E, which is a punitive tax measure that bans most deductions, resulting in an effective tax rate of around 80% of gross revenue.
What is the position of Josh Schiller and David Boy in their lawsuit against Attorney General Merrick Garland?
-They are suing to challenge the federal prohibition of marijuana and the government's ability to interfere with state-regulated cannabis programs, advocating for no federal oversight over state-licensed cannabis companies.
What does the reclassification of marijuana to Schedule III not address?
-The reclassification does not provide a legal fix to the banking issues that have long plagued the industry, nor does it allow US-based cannabis companies to be listed on the New York Stock Exchange or NASDAQ. It also leaves unanswered questions about the need for state license cannabis companies to obtain new forms of licensing or whether recreational stores can continue to operate.

Outlines

00:00

📉 DEA Reschedules Marijuana: Implications for the Cannabis Industry

In a historic move, the US Drug Enforcement Administration (DEA) is set to reclassify marijuana from a Schedule I to a Schedule III drug, marking a significant shift in federal policy towards cannabis. This change is expected to have profound effects on the cannabis industry, which is currently valued at $28 billion and operates across 38 states with regulated sales. The reclassification could lead to the removal of punitive tax measures, such as filing under US Code 28E, which has resulted in an effective tax rate of around 80% of gross revenue for most cannabis companies. The industry has responded positively, with some pot stocks soaring by as much as 25% following the announcement. The DEA's decision is not yet final and must undergo further review and a public comment period. The reclassification is a step towards federal legalization and may pave the way for additional cannabis reforms, although it does not address banking issues or allow for cannabis companies to be listed on major stock exchanges. There are also unanswered questions regarding the need for state-licensed companies to obtain new forms of licensing and the future of recreational stores.

05:00

📢 Forbes Daily Briefing with Kieran Meadows

This paragraph serves as a closing statement for the Forbes daily briefing, acknowledging the audience's attention and providing a sign-off. Kieran Meadows, presumably the host or reporter of the briefing, thanks the viewers for tuning in. The paragraph is likely accompanied by a musical outro, indicating the end of the segment or program.

Mindmap

Keywords

💡Rescheduling Marijuana

Rescheduling marijuana refers to the process of changing the legal classification of marijuana under federal drug control laws. In the context of the video, it describes the historic move by the US Drug Enforcement Administration (DEA) to reclassify cannabis from a Schedule I to a Schedule III drug, which is a significant shift in policy and has profound implications for the cannabis industry.

💡Schedule I Narcotic

A Schedule I narcotic is a drug classified under the Controlled Substances Act as having a high potential for abuse and no accepted medical use. In the video, marijuana's current classification alongside drugs like heroin and LSD is mentioned, highlighting its strict regulation and the severe legal restrictions associated with it.

💡Schedule III Drug

A Schedule III drug is classified as having a moderate to low potential for physical and psychological dependence, and has an accepted medical use. The video discusses the DEA's proposal to move marijuana to this category, which includes drugs like ketamine and anabolic steroids, indicating a less restrictive regulatory environment for cannabis.

💡Cannabis Industry

The cannabis industry encompasses businesses and organizations involved in the production, distribution, and sale of cannabis products. The video highlights the impact of the rescheduling on this industry, which is valued at $28 billion and operates in 38 states with regulated marijuana sales.

💡Controlled Substances Act

The Controlled Substances Act is a statute that regulates the manufacture and distribution of narcotics, stimulants, depressants, hallucinogens, anesthetics, and chemicals used to make illegal drugs. The video notes that marijuana was outlawed under this act in 1970, and the current move to reclassify it represents a significant policy change.

💡President Biden

President Biden is mentioned in the video as having requested a review of how marijuana is scheduled under federal law in October 2022. His stance on marijuana policy, including his statement in a State of the Union Address that no one should be jailed for using or possessing marijuana, is relevant to the broader context of cannabis reform.

💡HHS Review

The Department of Health and Human Services (HHS) review refers to the assessment conducted by HHS to determine if there are legitimate medical benefits of cannabis. The video states that HHS concluded in favor of such benefits and recommended reclassifying marijuana to Schedule III, which influenced the DEA's proposal.

💡Public Comment Period

A public comment period is a time when the public can provide feedback on proposed regulations or changes to laws. The video mentions that the proposal to reclassify marijuana is not yet final and must undergo a public comment period, allowing for input from various stakeholders before it becomes official.

💡Cannabis Stocks

Cannabis stocks are shares in companies that are part of the cannabis industry. The video reports that some of these stocks saw an increase of up to 25% within hours of the announcement of the DEA's proposal to reclassify marijuana, indicating the financial impact and investor reaction to the potential policy change.

💡US Code 28E

US Code 28E is a punitive tax measure that applies to traffickers of controlled substances, disallowing most deductions and leading to high effective tax rates for businesses involved. The video explains that moving from Schedule I to Schedule III would allow cannabis companies to no longer file under this code, which has a significant financial implication for the industry.

💡Federal Legalization

Federal legalization refers to the process of making a substance legal at the national level. The video cites David Culver, vice president of the US Cannabis Council, who says that the rescheduling of marijuana sets the country on a clear path to federal legalization, indicating a potential future change in the legal status of cannabis.

💡State-Regulated Cannabis Programs

State-regulated cannabis programs are legal frameworks established by individual states to control the cultivation, distribution, and sale of cannabis. The video discusses the ongoing legal challenges and the need for additional reforms at the federal level to fully align with these state programs, emphasizing the complex legal landscape surrounding cannabis.

Highlights

The US Drug Enforcement Administration (DEA) is ending its ban on cannabis by reclassifying it as a less dangerous drug.

Marijuana will be moved from a Schedule One to a Schedule Three drug, a significant change in marijuana reform since 1970.

The DEA's proposal to reclassify marijuana has been anticipated for months and follows President Biden's request for a review in October 2022.

The Department of Health and Human Services completed its review, concluding cannabis has legitimate medical benefits.

President Biden declared in a State of the Union Address that no one should be jailed for using or possessing marijuana.

The proposal to reclassify marijuana is not yet final and must clear the White House Office of Management and Budget and undergo a public comment period.

The reclassification immediately energized the $28 billion cannabis industry, with some pot stocks up 25% within hours of the AP report.

David Culver, VP of the US Cannabis Council, states that this is the most significant cannabis reform in modern history, setting a path to federal legalization.

The shift from Schedule 1 to Schedule 3 means cannabis companies will no longer be subject to the punitive tax measure reserved for drug traffickers.

The effective tax rate for most cannabis companies is around 80% of gross revenue, which could change with the reclassification.

Ending the ban on marijuana at the federal level could pave the way for greater reform.

Josh Schiller, an attorney, says the move to Schedule 3 is a step in the right direction but is not sufficient.

The rescheduling does not provide a legal fix to the banking issues that have long plagued the industry.

The move to Schedule 3 does not allow US-based cannabis companies to be listed on the New York Stock Exchange or NASDAQ.

There are unanswered questions regarding whether state-licensed cannabis companies will have to stop selling products until FDA rules on approvals.

Andrew Fredman, executive director of the Coalition for Cannabis Policy, Education, and Regulation, cautions that the DEA's move does not legalize cannabis under federal law.

The current dispensary model across America is still unlawful under federal law and will require more policy changes for full legalization.