Cannabis News of Note for the Week:
Law 360: Three Takeaways From The DOJ’s Cannabis Recommendation (paywalled, full text here)
Cannabis Wire: In Historic Move, DEA Will Recommend Cannabis Reclassification(paywalled, full text below)
AP: New era for pot regulation leaves old problem: Many cannabis companies can’t find a bank
Politico Pro Cannabis: Ailing weed industry would get a big financial boost if federal marijuana restrictions are lifted (paywalled, full text below)
Politico Pro Cannabis (4/29): Schumer wants stablecoins, cannabis banking in FAA bill (paywalled, full text below)
Politico Pro Cannabis (5/3): Senate Republican Says SAFE Amendment on FAA unlikely (paywalled newsletter, text below)
Punchbowl News AM: Senate out until Tuesday with no FAA deal in sight
NYTimes: As He Exits Congress, Blumenauer Wants His Party to Embrace Pot Legalization
Cannabis Reports of Note for the Week:
Congressional Research Service Report Published May 1: Legal Consequences of Rescheduling Marijuana
PBC Conference: 2024 Cannabis Banking Directory
CRB Monitor: Cannabis Licensing Activity (Q1 2024): North American Markets Cool Further
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Cannabis Wire: In Historic Move, DEA Will Recommend Cannabis Reclassification
The rescheduling of cannabis, once complete, will mark an historic shift in U.S. cannabis policy, and is likely to send ripple effects across the globe.
PUBLISHED ON APR 30, 2024 1:50PM EDT
Nushin Rashidian@nushinrashidian
For the first time in history, the federal government has agreed that cannabis should be moved to a less restrictive category.
The U.S. Drug Enforcement Administration will advance a recommendation from the Department of Health and Human Services that cannabis be moved from Schedule I to Schedule III of the Controlled Substance Act. Cannabis has been in Schedule I, the most restrictive category, for more than fifty years. A move to Schedule III acknowledges its medical uses.
“Today, the Attorney General circulated a proposal to reclassify marijuana from Schedule I to Schedule III. Once published by the Federal Register, it will initiate a formal rulemaking process,” the Department of Justice’s Director of Public Affairs Xochitl Hinojosa told Cannabis Wire in a statement.
Sources close to the rescheduling process who spoke on the condition of anonymity confirmed to Cannabis Wire that a memo from the DOJ’s Office of Legal Counsel – the Attorney General requested their legal opinion – is expected to be published alongside the DEA’s Notice of Public Rulemaking in the Federal Register. Some details about the memo: it will make clear that the Single Convention on Narcotic Drugs does not pose an obstacle to cannabis moving from Schedule I to Schedule III, that the two-part test that HHS conducted to support its recommendation is sufficient, and that DEA must substantially defer to HHS findings in support of Schedule III amid public comment.
One outstanding question that will arise in the coming weeks and months is: how much will DEA defer?
HHS recommended to the DEA in August that cannabis be moved to Schedule III, following an extensive assessment of new data and research, and of medical cannabis programs across the country, as Cannabis Wire previously reported.
In October 2022, President Joe Biden called on the DOJ, within which DEA sits, and HHS to evaluate how the federal government classifies cannabis. He declared that “it makes no sense” that cannabis is in the same category as heroin.
The announcement was itself historic, as no U.S. president has called on their administration to conduct this kind of review. Past reviews have resulted from petitions, most often from reform advocates. In each and every case, DEA and HHS decided to keep cannabis in Schedule I.
While the full impact of a move to Schedule III remains to be seen, some implications are clear. Primarily, there would be fewer hurdles for cannabis researchers with Schedule III, and such a move is likely to lead to a more robust research landscape. On the industry side of things, Schedule III would mark the end of a tax code that has led to a high tax burden.
Today, a majority of Americans live in a state where cannabis is legal for medical or adult use.
Rep. Earl Blumenauer, co-chair of the Congressional Cannabis Caucus, said on Tuesday that the “Biden-Harris Administration is listening.”
“If today’s reporting proves true, we will be one step closer to ending the failed war on drugs. Marijuana was scheduled more than 50 years ago based on stigma, not science. The American people have made clear in state after state that cannabis legalization is inevitable,” Blumenauer said in a statement.
Already, Smart Approaches to Marijuana, the largest anti-legalization group in the U.S., has announced that it will challenge the DEA’s decision. “SAM intends to oppose the Attorney General’s decision in the rule making process and to challenge any final rescheduling decision in court,” the group said in an email.
The Associated Press first reported that the DEA will put forth a proposed rule this week.
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Politico Pro Cannabis: Ailing weed industry would get a big financial boost if federal marijuana restrictions are lifted
The industry’s taxes would be reduced by hundreds of millions of dollars if the Justice Department goes forward with rescheduling.
BY: PAUL DEMKO | 05/01/2024 04:26 PM EDT
The financially battered legal weed industry is euphoric over the Biden administration’s efforts to ease federal marijuana restrictions.
That’s because if the Justice Department follows through on plans to reclassify marijuana from Schedule I to Schedule III under the Controlled Substances Act, it would mean a massive tax break for weed companies.
“It’s really transformative for the industry of cannabis,” said Charlie Bachtell, CEO of Cresco Labs, one of the country’s largest weed companies, in an interview. “It breathes life back into this space.”
Currently, cannabis companies are subject to Section 280E of the federal tax code, which prohibits businesses engaged in illegal narcotics trafficking from writing off business expenses, including salaries and benefits. That means cannabis companies typically pay an effective federal tax rate of 70 percent or more.
But 280E only applies to Schedule I and II narcotics.
Huge tax windfall: The 13 largest weed companies would see their tax bills collectively fall by $700 million per year if marijuana is moved to Schedule III, according to an analysis by Viridian Capital Advisors.
Or take one specific company: Verano Holdings, which had revenues of nearly $1 billion last year, estimates that it would pay $80 million less in taxes per year if it was no longer subject to 280E.
Cash crunch: The other major boost to the struggling weed industry if rescheduling goes forward is expected to be significantly greater access to capital. Currently, many investors are afraid to touch the space because of federal illegality. In addition, banks largely shun the sector out of fear that they might face punishment for working with an illegal industry.
The upshot is that there are few options for generating cash, and those options that do exist offer terms that are way more costly than in a typical industry.
Even though marijuana would remain an illegal substance if it’s moved to Schedule III, it’s likely that far more investors — and even some additional banks — would be emboldened to work with the industry.
“We’ve had such frozen capital markets for years now,” said Morgan Paxhia, co-founder of Poseidon Asset Management, an investment firm focused on the cannabis industry that launched a decade ago. “This is a very important step forward to getting back into a place where capital can start to recirculate and move around the industry much better.”
Financial woes: The weed industry has been mired in a deep financial funk for the last three years. Cannabis companies were thrilled back in early 2021 when Democrats took total control of the federal government, believing federal policy changes were imminent.
That led them to raise tons of capital and expand operations. But the anticipated federal policy changes never developed. That in turn led to a weed glut and cratering prices. Those challenges were exacerbated by the vibrancy of illegal sales and the burgeoning market for intoxicated hemp-derived products.
The end result: lots of financial losses.
Collectively, the country’s 10 biggest weed companies in terms of revenues lost roughly $1.7 billion last year, according to a POLITICO analysis of financial filings.
The share price of the AdvisorShares Pure US Cannabis ETF — which includes many of the country’s largest weed companies — plummeted from a high of $52 in February 2021 to less than $5 last August.
“The economics don’t work in the current regulated cannabis structure,” said Bachtell, citing the challenges around taxes and capital that companies have faced. “That doesn’t add up.”
Stock boom: Investors reacted enthusiastically to the rescheduling news. Shares of the Pure US Cannabis ETF immediately jumped by more than 25 percent — to more than $11 per share — but have since settled at about $10. Individual companies saw similar spikes. Verano Holdings’ shares, for example, initially jumped by roughly 30 percent on the news.
“These companies have slowed considerably in their growth prospects,” Paxhia said. “But all of a sudden, if you unlock this cash flow, they could potentially move back into growth mode and these companies start growing 20-plus percent.”
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Politico Pro Cannabis (4/29): Schumer wants stablecoins, cannabis banking in FAA bill
By Eleanor Mueller
Senate Majority Leader Chuck Schumer is hoping to add both stablecoin and cannabis banking legislation to the FAA reauthorization bill despite GOP resistance, an aide said Monday.
Though Schumer discussed such a plan at a recent closed-door meeting, it was previously unreported that he supported the idea. Doing so evidences his desire to enact both measures — and as a package.
Neither bill was part of base text unveiled Monday, but they could theoretically be included in a substitute amendment that would get a procedural vote later this week, said the aide, who was granted anonymity to discuss private conversations.
The effort faces long odds given Senate Minority Leader Mitch McConnell’s pushback against the cannabis banking bill.
“Leader McConnell continues to oppose marijuana banking,” McConnell spokesperson Doug Andres said in a statement.
Another roadblock: House Financial Services Chair Patrick McHenry (R-N.C.) and ranking member Rep. Maxine Waters (D-Calif.) have yet to finalize the latest version of their stablecoin legislation, which would regulate cryptocurrencies pegged to assets like the U.S. dollar.
The lawmakers sat down with Schumer earlier this month to discuss pairing that measure with cannabis banking legislation and adding both to the FAA bill, among other things.
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Politico Pro Cannabis (5/3): SENATE REPUBLICAN SAYS SAFE AMENDMENT ON FAA UNLIKELY — Deliberations drag on over the Federal Aviation Administration Reauthorization Act on Capitol Hill, but one Republican supporter of cannabis banking legislation says it’s unlikely that bill will be added to the FAA bill as an amendment.
At the end of last week, Majority Leader Chuck Schumer was still discussing the possibility of an amendment. But Sen. Kevin Cramer (R-N.D.), a consistent champion of the cannabis banking legislation, said he does not see that as a likely avenue.
“My sense is that there wouldn’t be enough votes to amend FAA with it… and there’s no point in setting up FAA for failure,” Cramer told Natalie earlier this week, adding that “there’s some rumor that it could be brought up after FAA as a standalone.”
Cramer also said he has not been asked by any pro-SAFE lawmakers to talk to other Republicans about getting them on board with the legislation — as either an amendment or a standalone.
“It’s possible that this comes up like right after [FAA],” he said. “It is crazy, considering how much we have to do.”
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Punchbowl News AM (5/3): Senate out until Tuesday with no FAA deal in sight
There’s new uncertainty this morning about whether the Senate can pass the five-year FAA reauthorization bill before next Friday’s deadline.
The Senate is gone until Tuesday, and official negotiations on a time agreement and amendments are only just beginning. Multiple senators have indicated they won’t consent to fast-tracking the bill if their amendments aren’t considered.
On top of that, the No. 2 Senate Republican suggested a short-term extension of the FAA’s authority might be needed. Even that would require a unanimous consent agreement to pass it in time — and senators could throw up roadblocks to maximize their leverage on potential amendment votes.
“We want to get this done in the quickest, best way possible,” Senate Majority Leader Chuck Schumer told us. Schumer added that he wants to “avoid” a short-term patch.
Sen. Ted Cruz (R-Texas), who’s managing the FAA bill on the floor for the GOP side, said Thursday that he still believes the Senate can pass the five-year reauthorization next week.
That’s going to take a lot of cooperation. And there are several moving parts here that could derail the effort.
Getting the ball rolling: Shortly after the Senate voted to begin debate on the bill Thursday afternoon, leaders in both parties ran the first hotline for a possible time agreement. This allows senators to request votes on specific amendments.
The hotline, which we obtained, includes an amendment from Sens. Jeff Merkley (D-Ore.) and John Kennedy (R-La.) that would restrict the TSA’s ability to use facial recognition technology. A big bipartisan group is behind this.
But the hotline didn’t include some of the more contentious amendments — and perhaps that was by design since this was the initial offer. In order to secure a time agreement, the deal is likely going to need to include many, if not all, of the following:
| → | An amendment from Maryland and Virginia senators that would scrap a provision adding flight slots at Washington Ronald Reagan National Airport. |
| → | An amendment from Sens. Elizabeth Warren (D-Mass.) and Josh Hawley (R-Mo.) that would codify the Biden administration’s recently announced policy on automatic refunds for canceled or delayed flights. We scooped this Thursday. Democrats complained to their leadership that the negotiated FAA bill text includes a provision that seems to contradict the new policy. |
| → | An amendment from Sens. Peter Welch (D-Vt.) and J.D. Vance (R-Ohio) that would extend the Affordable Connectivity Program with $7 billion. |
| → | The Kids Online Safety Act, which has nearly 70 co-sponsors and is led by Sens. Richard Blumenthal (D-Conn.) and Marsha Blackburn (R-Tenn.). |
| → | Hawley’s bill to reauthorize a $50 billion compensation program for victims of nuclear radiation. |
| → | Sen. Roger Marshall’s (R-Kan.) Credit Card Competition Act. (More on this below.) |
On another note: The Senate tried to quickly pass the House’s antisemitism bill on Thursday, but there were objections from both parties.
Schumer said he still wants to try to pass it. But with the FAA deadline looming, it seems unlikely that the Senate will try to pass this measure unless there’s a unanimous consent agreement.
— Andrew Desiderio