Breaking News HHS Recommendation for Rescheduling of Cannabis

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The Department of Health and Human Services (HHS) released a full, un-redacted letter recommending the rescheduling of cannabis from Schedule I to Schedule III. This recommendation, made in response to a review ordered by President Biden, could bring significant benefits, including the removal of 280e tax restrictions and potential implications for uplisting to major exchanges. The HHS confirmed the Schedule III recommendation, positioning cannabis alongside more socially and medically acceptable drugs. The release of the un-redacted letter on January 12th revealed that the HHS recognized conclusive evidence of cannabis’s effectiveness in treating pain, while other medical benefits were deemed inconclusive.

The HHS recommendation is rooted in the perceived medicinal value of cannabis, addressing factors like potential for abuse, accepted medical use, and risk to public health. The comprehensive assessment by HHS and the FDA supports the Schedule III recommendation, but the final decision rests with the Drug Enforcement Agency (DEA). While the industry is hopeful for a DEA response, the timing remains uncertain.

If the DEA agrees with the Schedule III recommendation, it could lead to cash flow benefits, facilitate uplisting to major exchanges, and increase institutional involvement. The move to Schedule III may also make it easier to study cannabis, addressing gaps identified by the HHS. Despite the limited recognition of medical benefits beyond pain treatment, the acknowledgment marks significant progress.

The ongoing legalization of cannabis across the U.S., along with the positive societal impacts of state-legal cannabis markets, has influenced the HHS and FDA analyses. However, the final say lies with the DEA, and while a consistent Schedule III recommendation is anticipated, potential risks to sector sentiment exist if a different conclusion is reached. The timeline for the DEA’s decision remains unclear, but it could serve as a material valuation catalyst for the cannabis sector. A Schedule III reclassification could stimulate research and development, eliminate 280E federal taxation, and enhance the industry’s overall valuation, representing a pivotal moment akin to President Biden’s original announcement in 2022.

Sources: Jeffries Sell-Side research report dated 01/13/24 “Weed Weekly (Issue 184)”, by Owen Bennett; Cannacord Genuity Corp. Sell-Side research report dated 01/14/24 “HHS raises the curtain on its Schedule III recommendation for cannabis”, by Matt Bottomley, Luke Hannan, Yewon Kang, Najib Islam, and Bobby Burleson

Sources: KEY Investment Partners, Yahoo, Pitchbook, BDSA

A group of 12 Democratic state attorneys general has sent a letter to DEA Administrator Anne Milgram, urging the Drug Enforcement Administration (DEA) to proceed with the federal rescheduling of marijuana. Led by Colorado Attorney General Phil Weiser, the letter commends the U.S. Department of Health and Human Services (HHS) for recommending the move of cannabis from Schedule I to Schedule III of the Controlled Substances Act, citing public health and safety reasons. The attorneys general emphasize their responsibility to protect consumers and address concerns about the illicit cannabis market, unregulated hemp products, and the proliferation of dangerous opioids.

The letter underscores the benefits of state-sanctioned cannabis markets, providing access to regulated products safer than those available on the street. Rescheduling to Schedule III would allow the state-regulated cannabis industry to maintain standards, eliminate the illicit market, and protect consumers. The attorneys general also highlight the substantial tax revenue generated by regulated cannabis sales, contributing billions of dollars to state coffers. Moving cannabis to Schedule III would enable licensed businesses to take federal tax deductions, promoting investments in state programs and collaboration with law enforcement for public health and safety efforts.

While acknowledging the health and safety risks of cannabis use, especially among youth, the attorneys general argue that rescheduling to Schedule III is a public health and safety mandate. They view it as a critical step towards a more accountable cannabis policy, expressing readiness to work with the DEA to ensure the continued existence of state regulatory programs under evolving federal cannabis policies. The signatories include attorneys general from California, Connecticut, Delaware, Illinois, Maryland, Massachusetts, Nevada, New Jersey, Oregon, Pennsylvania, and Rhode Island. The timing of the DEA’s scheduling decision remains uncertain, with the agency holding final authority and conducting its review.

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