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DEA Submits Proposal to Reschedule Cannabis, Stocks Rally

The Associated Press reported Tuesday (April 30) that the US Drug Enforcement Administration (DEA) was on the cusp of rescheduling cannabis from a Schedule I substance, the same category as heroin and methamphetamines, to Schedule III.

The Department of Health and Human Services suggested cannabis be reclassified on August 29, 2023, and the DEA has been deliberating on the decision for months, urged by lawmakers to heed the recommendation.

According to the report, Attorney General Merrick Garland was scheduled to submit the proposal to the White House Office of Management and Budget on Tuesday afternoon. President Biden has been vocal about his stance on this issue and has urged the Attorney General to expedite the process, suggesting his readiness to move forward once the proposal reaches his desk.

The market responded enthusiastically to the news, with share prices of major cannabis companies Tilray Brands (NASDAQ:TLRY,TSX:TLRY) and Canopy Growth (NASDAQ:CGC,TSX:WEED) surging by 38.76 percent and 81.35 percent, respectively, from the opening bell to market closure. Curaleaf Holdings (TSX:CURA,OTCQX:CURLF) also saw its stock price jump 22.35 percent over the trading day. The AdvisorShare Pure US Cannabis ETF (NYSEARCA:MSOS) also saw a dramatic surge of 26.94 percent by the end of the trading day, which led to trading being halted on two occasions due to the Limit Up-Limit Down rule.

Cannabis reclassification’s implications for research and business

Cannabis has been defined as a Schedule I drug since 1971, when President Richard Nixon signed the Controlled Substances Act (CSA) into law, part of his wider Comprehensive Drug Abuse Prevention and Control Act, which provided a regulatory foundation for regulating controlled substances. The CSA classified drugs into one of five schedules; Schedule I drugs are defined as having a high potential for abuse and no medical use.

Unfortunately, the research on marijuana’s potential medical properties has been somewhat limited, largely due to its Schedule I classification. However, the studies into the medical properties of cannabis that have been possible have revealed that the traditional analysis of it is oversimplified.

For example, cannabis has been found to relieve pain and nausea, stimulate appetites, and is sometimes used to treat sleep disorders and glaucoma, as well. CBD, the non-psychoactive compound found in cannabis, may have even more medical properties than its psychoactive counterpart, THC — it is used to help treat migraines, inflammatory bowel disease and seizures, as well as mental health disorders such as anxiety and depression.

Reclassifying cannabis to a Schedule III substance, which encompasses drugs with some potential abuse but accepted safety for medical use, opens the door to opportunities to conduct more thorough research into its benefits and identify further tangible uses.

On the business side of things, reclassification would also relieve tax burdens for cannabis businesses in the 38 states where some form of cannabis is legal. For many business owners, obstacles such as Internal Revenue Service code 280E — which prevents businesses from deducting ordinary business expenses related to Schedule I and II substances — stand in the way of profits. However, it is unlikely to affect the industry’s limited access to banking products like business loans and payment services, as that issue is driven by the substance’s federal illegality.

According to MJBiz Factbook, the cannabis industry could potentially add US$112.4 billion to the US economy in 2024 and up to US$200 billion by 2030. These figures do not account for rescheduling or legalization, meaning that the total would likely be higher if either were to occur.

Cannabis rescheduling date still uncertain

While the most recent development is a promising step in the right direction, it’s worth noting that the process of rescheduling could take months, and the date for cannabis rescheduling is still unknown. However, we do know the next steps in the process.

Marijuana Moment reported that the proposal to reclassify cannabis was sent to the White House on Tuesday evening for review. Next, the Justice Department will publish the proposed rescheduling in the Federal Register and open the floor for a public comment period.

While cannabis does have medical benefits and is less dangerous than other Schedule I drugs, the proposal could still face some challenges during this period due to health concerns relating to its use. For example, there is some evidence to suggest that high levels of THC can cause psychosis in those with a family history of certain mental health conditions, particularly in adolescents. Cannabis is now on average at least 10 times stronger than it was in the 1970s.

It could also face delays in the form of lawsuits from those who disagree with the decision or those who want to cannabis de-scheduled entirely.

Once the public comment period concludes, the DEA will use the information it has accumulated to prepare its final ruling on the matter. The president does not need to sign the rescheduling into law.

Securities Disclosure: I, Meagen Seatter, hold no direct investment interest in any company mentioned in this article.

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