Spring 2024
Big Tobacco Betting on Cannabis:
OBX, a KEY Portfolio Company
Organigram Holdings Inc. has invested $2 million in Steady State LLC (d/b/a Open Book Extracts) through a convertible note, marking its first investment in the U.S.-based cannabinoid ingredient producer. OBX, located in North Carolina’s “Research Triangle,” offers formulation and finished goods manufacturing services, simplifying supply chains for its clients. Organigram’s Chief Strategy Officer, Paolo De Luca, expressed excitement about OBX’s scalable platform and leadership in the hemp derivatives market. OBX’s CEO, David Neundorfer, welcomed Organigram’s investment, citing shared commitments to product quality and future product launches in the U.S.
The investment aligns with Organigram’s strategic priorities, providing a foothold in the expanding U.S. market and opportunities for collaboration and research. OBX is nearing EU GMP certification, opening doors for international collaboration. “Organigram’s US $2 million subordinate secured convertible note instrument (the “Note”) is part of a larger funding round totaling ~US $15 million. The most recent investors include a fund managed by KEY Investment Partners and the Lago Innovation Fund. Existing investors of OBX include BT DE Investments Inc., a subsidiary of British American Tobacco plc. (BAT).”
Read the full announcement here.
The DEA Considers Rescheduling Cannabis
The Drug Enforcement Administration (DEA) is currently reviewing the classification of cannabis under the Controlled Substances Act (CSA), coinciding with the Department of Health and Human Services’ acknowledgment of its medical applications. This development has sparked speculation about a potential federal policy shift regarding marijuana. President Biden initiated a review of marijuana scheduling in October 2022, with the HHS recommending reclassification to Schedule III in August 2023.
Recently, the DEA confirmed its review of marijuana as a Schedule I drug and emphasized its authority in the decision-making process. While previous rescheduling attempts have failed, the current situation is considered unique, partly due to the administration’s involvement and the public nature of the process.
Potential implications of rescheduling include changes in drug testing laws, insurance coverage, and business operations in the cannabis sector. While many industry experts believe that the DEA will follow the HHS recommendation, the process is expected to be lengthy, involving a 60-day public comment period and possible legal challenges. Despite uncertainties, the acknowledgment of cannabis’s medical benefits by officials marks a significant milestone for patients and advocates.
The Five States That Could See Cannabis Reform In 2024
Five states in the U.S. are currently advancing efforts to decriminalize cannabis in 2024, reflecting widespread public support for adult-use cannabis legalization, as indicated by Pew Research.
On April 1st, The Florida Supreme Court approved a ballot initiative that seeks to legalize recreational marijuana use for adults in this year’s general election, giving a major boost to the effort to open up pot use in the third-most populous state in the country. If the 71% vote in favor of legalizing medical marijuana on 2016’s ballot initiative is any indication of Floridian’s support of marijuana, the odds a for a recreational program in Florida this November feel good.
In Pennsylvania, bipartisan interest in recreational cannabis legalization exists, but there are disagreements over the regulatory framework between Republicans and Democrats. Governor Josh Shapiro is advocating for legalization despite legislative hurdles.
Meanwhile, New Hampshire’s governor, Chris Sununu, has signaled readiness to sign a legalization bill, a departure from his previous stance, with legislation currently progressing through the House.
Hawaii is also moving towards legalization, supported by state leaders, but implementation may be delayed until 2026.
In South Dakota, activists are striving to gather enough signatures to put cannabis legalization on the ballot, having faced setbacks in the past. If successful, South Dakotans may vote on recreational cannabis this year. These developments underscore the evolving landscape of cannabis legislation across various states, with divergent approaches and challenges.
SAFER Banking & Its Implications On The US Cannabis Industry
The Secure and Fair Enforcement Regulation Banking Act (SAFER Banking Act) has garnered optimism for potential passage in 2024, after it advanced through the Senate Banking Committee in September 2023. SAFER primarily aims to expand traditional banking services to state-legal cannabis businesses, addressing issues such as limited access to financial services and funding. It proposes safe-harbor protections for financial institutions serving the cannabis industry, extending to mortgage lending and payment processing.
SAFER offers comprehensive protections for banks and credits unions and will increase access to capital for cannabis businesses, resulting in substantial industry growth. Additionally, it seeks to resolve challenges faced by hemp-related businesses in accessing financial services despite hemp’s federal legalization in 2018. SAFER has bipartisan support but still must navigate the legislative process in a divided Congress.
Historic Moment For Cannabis At The State Of The Union Address
President Biden’s recent State of the Union Address marked a significant moment for the cannabis sector, as he called for reform and referenced his initiative to review marijuana rescheduling, along with issuing mass pardons for individuals with possession convictions. This announcement signals a major shift in federal policy, bringing optimism to the cannabis community.
Rescheduling cannabis has the potential to alleviate the tax burden imposed on businesses, such as the 280E tax restriction, which inhibits growth opportunities. Industry leaders emphasize the financial benefits and destigmatization that rescheduling could bring, potentially saving companies millions in taxes and allowing them to focus on growth and job creation.
Additionally, rescheduling could lead to improved testing standards, ensuring the health and safety of consumers across the nation. Industry experts highlight the need for national standards in cannabis testing, which would enhance quality management systems and regulatory oversight, ultimately fostering industry longevity and success.
Germany Legalizes Cannabis & The European Market Continues To Grow
Germany’s recent legalization of cannabis marks a significant shift in Europe’s drug policy landscape, with implications for the entire continent. The new law, set to take effect on April 1st, decriminalizes personal possession and home growing while establishing a framework for non-profit associations to supply cannabis.
Originally aiming for a commercial market like Canada’s, Germany adjusted its plans to comply with international and EU laws, opting for a “legalization-lite” approach. This model, similar to reforms in the Czech Republic and Luxembourg, follows Malta’s non-commercial home-grow model as a blueprint. However, Germany plans to move towards commercial retail with a pilot study, joining ongoing experiments in the Netherlands and Switzerland under the guise of scientific research.
Germany’s decision carries weight due to its economic and political influence, potentially reshaping drug policies across the EU and internationally. The impact is felt in the UK as well, where arguments for reform gain traction amidst neighboring states’ actions. The growing public support for legalization, driven by evidence from other jurisdictions, challenges traditional “tough on drugs” stances of political parties.
As public opinion shifts and political leaders consider the pragmatic benefits of regulation, reforms become increasingly viable. London’s mayor, Sadiq Khan, has begun exploring cannabis reforms, reflecting the evolving landscape. With momentum building, Germany’s reforms signal a tipping point in drug policy, pushing Europe closer to widespread legalization.
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