Jan 29, 2024

Key Points

  • The Department of Health and Human Services (HHS) released details of its recommendation to re-schedule cannabis from schedule I to III; Drug Enforcement Agency (DEA) approval is pending but opposition and court proceedings could still delay re-scheduling.
  • Many complexities and unknowns but for now, its likely that individual state rights will remain status quo while still operating under the shadow of federal law. Active and unrestricted capital markets access is needed to maximize potential economic (and social) benefits.
  • Safe Harbor provisions for banks and SEC regulated activities (investment banking, custody, stock exchanges etc.) remain in question. With a re-scheduling, updated FinCen (U.S. Treasury Department) that includes such protections may suffice in the absence of specific legislation (such as SAFER Banking).
  • Inevitable reclassification will eliminate the 280E tax burden which materially improves cash flows and unlocks shareholder value in short order. Re-scheduling also eliminates a key element of risk and uncertainty that has kept many institutional investors on the sidelines.
  • Legalization at the Federal level could take years. In the meantime, Schedule III designation will expand permissions for research, likely fostering the bringing to market of new cannabinoid-based products, presumably under the umbrella of FDA oversight.

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