We recently got a big update on the ongoing Biden administration efforts to reschedule cannabis under the Controlled Substances Act (CSA).
The news is quite bullish for cannabis stocks, which means they look like a buy in the current bout of weakness.
The insights come from documents released after a Freedom of Information Act (FOIA) request. High level, the heavily-redacted documents confirm that the administration is serious about rescheduling, and laying the groundwork for a path to get there.
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If you are relatively new to the sector, here’s why this matters so much. Moving cannabis to Schedule III from Schedule I under the CSA (rescheduling) would be a huge boost for the sector because it would eviscerate an Internal Revenue Service ban on the deduction of most expenses by cannabis companies. The change would increase available cash. It would also confirm the trend towards cannabis law normalization at the federal level, and the broader cultural momentum in that direction.
Last fall, the Department of Health and Human Services (HHS) recommended to the DEA and its parent agency, the Justice Department (DOJ), that cannabis be rescheduled, according to news reports. Since then, sector experts have attempted to learn more about the recommendation using FOIA requests. Last week, HHS responded to attorneys Matthew Zorn at Yetter Coleman and Shane Pennington at Porter Wright Morris & Arthur, who write a Substack publication called On Drugs.
Here are five key takeaways, according to Pennington.
1) There’s a big emphasis on the medical benefits of cannabis use in the documents. This is key, because medical benefits are necessary for rescheduling to happen. We know HHS is heavily focused on medical benefits because of a simple page count. HHS dedicated over 150 pages out of 250 pages sent to Zorn and Pennington, to the question of whether marijuana has an accepted medical use in the U.S. We don’t know all the details, because of the redactions, but the high page count sends a signal.
“Had HHS applied the usual standards to decide that issue, it could have resolved it in two or three pages as it did when it addressed the question in 2016,” says Pennington. “I therefore conclude that it has likely announced and applied a new standard for assessing whether marijuana has a currently accepted medical use.” He thinks it is likely that HHS found that marijuana does have a currently accepted medical use.
2) There are other good hints that HHS is working hard to make the case for rescheduling. For example, HHS offers a broad definition of cannabis to include all the various strains. This is important because in the past HHS has said it’s almost impossible to analyze marijuana for scheduling purposes in part because marijuana strains and products vary in chemistry and composition. So, it was not possible to show that “marijuana” as a whole meets the “reproducible chemistry” requirement under DEA rescheduling rules. The new and all-inclusive definition of cannabis negates this obstacle.
3) Unlike prior HHS correspondence on rescheduling, which rejected rescheduling due in part to the need for further medical-use research (and the obstacles to conducting the research), this time HHS documents appear to omit this protest, says Pennington. The documents also suggest the FDA and HHS have gathered and analyzed a lot of medical research data, he says.
4) There are signs in the documents that HHS concluded marijuana’s abuse potential is relatively low, a requisite factor for rescheduling.
5) There are signs in the documents that the Food and Drug Administration (FDA) is reviewing evidence supporting medical use potential. The FDA is part of HHS.
What’s Next for Cannabis Rescheduling
Many cannabis sector experts think we will see a DEA-proposed rule on rescheduling by year’s end – the next step in this process. The clock is ticking. Even if we don’t see a proposed rule by then, don’t give up on this catalyst. Since this attempt at rescheduling is moving at warp speed compared to the normal timeline (up to nine years), there is a reasonable chance we will see DEA news flow relatively soon (if not by year’s end). And we could see complete rescheduling next summer, just in time for the height of the presidential campaign.
Rescheduling is a highly politicized issue that will likely play a role in the 2024 presidential election. Biden has publicly encouraged HHS and the DOJ to reschedule cannabis. Several legal experts believe it will happen by next summer at the latest, so Biden can use the progress to swing votes his way.
We might also get an HHS update on its views of medical use soon, in another context. HHS is supposed to provide Congress with a report on the medicinal value of cannabis this month, under a deadline set by the Medical Marijuana and Cannabidiol Research Expansion Act. The bill attempts to ease access to cannabis for use in studies. If HHS really is building the case for medical uses of cannabis, we would likely see evidence of it in this report.
For more on trends and ongoing legal reforms that suggest cannabis stocks are a buy, consider subscribing to Cabot Cannabis Investor here.
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