What the hell happened in Cannabis last week?
Recommendation to reschedule, stocks up, ETFs up, but why?
Last week the US Department of Health and Human Services sent a recommendation to the Drug Enforcement Administration to reschedule cannabis from schedule 1 to schedule 3. Upon the news stocks rocketed up with individual names up 50-100% for the week. But what does that letter mean?
I’ve read several dozen summaries, spoken with a dozen industry experts, I’ve listened to a few different X Spaces, podcasts etc. There’s a lot of hope, and a lot of confusion.
Here’s what I see, not advice, just thoughts and summaries of summaries.
HHS finds (via the FDA) that there is medical benefit to cannabis
Therefore they recommend formally to DEA to reschedule from 1 to 3.
Background:
Schedule 1 is for the harshest drugs with no known medical benefit, because of how terrible they are, there are punitive measures in the form of 280E taxation which forces sellers to pay taxes on gross profits versus net profits (if you’ve followed cannabis for more than 5 minutes you’ve heard this all before)
Schedule 3 narcotics are not subject to 280E
It is now up to the DEA to run their analysis (there are 8 specific questions/ways they need to analyze the request) and propose (either agreeing or disagreeing) with HHS on the reschedule.
While DEA has historically never gone against the HHS/FDA recommendation they must consider non-health related factors such as enforcement, Federal and State implications and even international treaties.
That’s what we Know. There are a lot of unknowns. Cannabis has NOT been rescheduled, cannabis companies are not suddenly awash with cash after ditching 280E. No one knows if or when DEA will formally reschedule, they may have to release an interim finding within 90 days, that does not change anything, following that DEA will still have to go through the administrative rule making progress.
This is great news, I hate sounding like a Debbie-downer, but for now there are more known-unknowns. Will cannabis be rescheduled? Yes, I believe it will. My take, for what it’s worth is that this will become a highly political issue going into next year’s election. Hopefully both sides of the political spectrum take it on and congress is pressured to act. I hope so. For now stocks are likely to whiplash up and down, left and right with any news or rumors. We’ll see.