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Industry reacts

US: DEA agrees to reschedule cannabis to Schedule III

After 8 months, the decision is official: the Drug Enforcement Administration (DEA) agrees with the HHS recommendation to reschedule cannabis from Schedule I to Schedule III under the Controlled Substances Act. Importantly, rescheduling cannabis to Schedule III eliminates the 280E tax burden that currently applies to cannabis businesses.

Schedule I drugs are defined as "drugs with no currently accepted medical use and a high potential for abuse," which includes heroin and LSD. Schedule III drugs are considered to have a "moderate to low potential for physical and psychological dependence" and can be obtained legally with a prescription. The move is part of the scheduling review process being undertaken by the federal government following the directive of President Biden made on October 6, 2022.

The rescheduling does not mean that cannabis will be federally legal. Still, it's a major development for the industry. The next step in the rescheduling process is for the White House Office of Management and Budget (OMB) to review the proposal.

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"A historic move"
"The DEA's decision to recategorize cannabis from Schedule I to Schedule III under the Controlled Substances Act is historic," says Jon Levine, CEO and President of MariMed. "The positive impact this will have cannot be overstated. Our industry, the millions of consumers and patients we serve, and the individuals and communities that have been ravaged by the War on Drugs, all will see positive benefits. So too will those investors who have supported this industry for many years, patiently waiting for a major federal catalyst such as this."

"Under Schedule III, the many benefits from cannabis will be significantly easier to research, opening the door to further product innovation and credibility for the plant's medicinal value. It's a monumental step forward in mainstreaming cannabis and will confirm that our industry produces products that are safe and effective in treating a wide range of health and wellness issues. Consumers are the biggest winners here," Jon adds.

"Schedule III is a major positive for cannabis businesses as well," he explains. "Most notably, Section 280E of the Internal Revenue Code will be eliminated, something our company has been proud to fight for over the years. According to various reports, the burden of 280E has resulted in cannabis companies paying $1.8 billion more in federal taxes compared to non-cannabis businesses. At MariMed, we anticipate the elimination of 280E will result in millions of dollars in tax savings annually, further strengthening our position as one of the most financially sound cannabis operators in the industry. Those extra funds will help contribute to the growth strategies we are already implementing, including acquisitions and consumer-driven product innovation."

Jon is also hopeful that this rescheduling finally persuades major financial institutions to work with the cannabis industry. "Will it pave the way for US operators to finally list on U.S. stock exchanges? Will it enable smaller operators and entrepreneurs the access to capital they desperately need to survive and thrive? Hopefully, today's announcement will speed the long-awaited passage of the SAFE Act and the answer will be 'yes.' With it, we should see more established banks and institutional investors finally invest in cannabis businesses, provide loans and credit card services to them, and offer standard banking services to the industry's employees."

Andrii Iarygin

"Our work does not stop here"
"While NCR continues to call for federal action to address criminal justice reform and empower existing state programs, rescheduling marks a monumental shift in federal cannabis policy as our fight to end prohibition continues," Saphira Galoob says, Executive Director of the National Cannabis Roundtable. "We applaud President Biden for his courage and leadership in setting this process in motion, and we thank the due diligence of the DOJ and HHS in carrying out this process and coming to a decision based soundly in science that we hope to see swiftly finalized, opening up the doors for further important medical research and alleviating the insurmountable tax burden imposed under 280E. This is critical for state legal cannabis businesses to be treated with fairness and to have the resources needed to reinvest in their workforce and community – and to survive the threat the illicit market poses to the regulated market and public safety. But we know our work does not stop here, particularly when it comes to righting the wrongs of the War on Drugs. While we celebrate progress today with this historic news, we remain committed to continuing the conversations with our federal partners to enact additional cannabis reforms that are long overdue – starting with getting SAFE Banking passed this year and ultimately ending the harmful and misguided policy of federal prohibition."

Good riddance
"This is a major nail in the coffin on a failed 50-year prohibition policy. Good riddance, let it rest in peace," says John Mueller, Founder & CEO of Greenlight. "We're finally headed in the right direction after all these years, but we still have a long way to go. This is a major milestone for a marginalized industry that's been fighting for recognition. We're more than ready to be recognized as a legitimate industry on its way to becoming a $50 billion market. It's about time we embraced progress and leave outdated practices behind."

"Today marks a historic step forward from the Federal government on cannabis reform. The DEA's agreement with the HHS to reschedule cannabis from Schedule I to Schedule III is a pivotal move that opens various opportunities to cannabis operators like Ascend," says John Hartmann, CEO of Ascend Wellness. "This favorable industry development could improve customer and patient access, enhance access to funding, provide broader research avenues, and more. As we navigate this transformative landscape, Ascend eagerly anticipates exploring further potentials, including potentially up-listing to major exchanges. We look forward to seeing how this plays out in the coming weeks."


More lending opportunities
"The profound impact of rescheduling cannabis from Schedule I to Schedule III would signify a crucial shift in the perception of cannabis, recognizing its medical potential and solidifying its legitimacy in the financial realm. 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," says Sundie Seefried, CEO of Safe Harbor Financial. "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."

"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," adds NewLake Capital Partners CEO Anthony Coniglio. "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."

Andrii Zorii

"Moving from prohibition to recognition"
"Embracing this momentous shift in cannabis classification isn't just about changing policies; it's about a new era of understanding and opportunity," says Adam Wilks, CEO of Carma HoldCo. "At Carma HoldCo, we've always championed the transformative power of cannabis, not just as a product but as a catalyst for positive change. This reclassification will not be just a regulatory adjustment; it's a validation of what we've known all along: cannabis isn't a threat; it's a solution. It's time to rewrite the narrative, break down barriers, and usher in a future where cannabis is celebrated for its potential to heal, inspire, and empower. And as we stand on the cusp of this historic moment, let's remember: we're just getting started."

Even the Australian market sees the U.S. move as a positive change. "This is great news. We're not there yet but it seems that the US legislators are considering what could be a win across the board, a win for the legitimate cannabis industry, a win for regulators and most importantly a win for patients," says Tom Varga, CEO of Biortica Agrimed. "This US news together with recent news from the EU is clear recognition that the world is moving from prohibition to recognition," he said.

Stocks rise
According to BNN Bloomberg, cannabis stocks surged after the announcement was made. "Tilray Brands Inc. jumped 40%, while Canopy Growth Corp. gained 79%. The MJ PurePlay 100 Index, which tracks the industry globally, rose 22%, the most since October 2022. Meanwhile, the AdvisorShares Pure U.S. Cannabis ETF surged 25% and was halted for volatility in intraday trading."