We continue to get positive signals out of Washington, D.C. for cannabis companies.
The latest came in the form of Donald Trump’s nomination of Rep. Matt Gaetz (R-FL) for U.S. attorney general (AG).
Gaetz has a positive record on cannabis, so this is bullish for rescheduling, which is managed by the U.S. attorney general. The Department of Justice, which is led by the AG, oversees the Drug Enforcement Administration (DEA). The DEA is considering a Biden administration rescheduling proposal.
The background here is that moving cannabis to Schedule III from Schedule I under the Controlled Substances Act would help cannabis companies by neutralizing an IRS provision barring the deduction of operating expenses against revenue from the sale of Schedule I drugs. Gaetz supports rescheduling.
Of course, it is not clear the Senate will approve of Gaetz as attorney general. But there might be a way around that obstacle.
What to do now
The Gaetz nomination is a bullish signal for the cannabis group, but actual progress on federal cannabis is going to take many months, at least. Consider accumulating portfolio names on weakness. Traders may want to consider selling Wednesday’s cannabis stock strength. It may be some time before another catalyst lands. However, selling is risky because it is difficult to predict what politicians might do next, or when. Investor sentiment towards cannabis is largely driven by catalysts from the political arena, as opposed to company results or sector sales trends.
Here is more detail on Gaetz.
Cannabis reform support
Below is a summary of Gaetz’s views on cannabis reform. As you can see, he is quite supportive of reform.
* Gaetz has voted for cannabis legalization. He co-sponsored and voted for the Marijuana Opportunity Reinvestment and Expungement (MORE) Act in 2022, which would legalize the drug. He thinks federal prohibition infringes on states’ rights.
* Gaetz has voted for a bill that would allow banks to serve cannabis companies.
* He has supported legislation that would prevent the military from testing recruits for cannabis.
* He’s supported legislation to expand research into medical uses of cannabis.
* Last spring, Gaetz supported cannabis legalization on Newsmax. “Perhaps the worst decision made by the U.S. government in 1970 was to begin the war on drugs through the Controlled Substances Act,” he said. Gaetz said the government should focus on ending the fentanyl abuse epidemic, not prosecuting marijuana cases.
* In a December 2020 speech in Michigan, Gaetz said: “In the next term of Donald Trump, maybe he ought to pick me to be the attorney general. I’d go easy on marijuana, tough on Big Tech, and I would go after the deep state.”
* Gaetz has said he wants to go further than moving cannabis to Schedule III, to prevent “big pharma” from controlling the cannabis market. It’s not clear exactly what that means, but it sounds like support for de-scheduling, which would be even more positive for the sector. Last August Gaetz tweeted “Delist cannabis,” also an apparent reference to de-scheduling.
While Gaetz opposed Florida’s Amendment 3 which would have legalized recreational use, it was because he thinks the change should be enacted by lawmakers since this would allow them to fine-tune the policy.
U.S. Cannabis Council (USCC) lobbyist David Culver says Gaetz “is one of the most pro-cannabis Republicans on Capitol Hill. By tapping him to serve as the nation’s top law enforcement officer, President-elect Trump is signaling his commitment to make good on his campaign promises around cannabis reform,” he said.
The chief obstacle
Gaetz is a controversial figure. He’s been investigated for sexual misconduct and illicit drug use. No charges have been filed, to date. But many senators openly oppose him for the AG slot.
One option to get around this is the use of recess appointments. Presidents are allowed to make appointments without Senate confirmation when the Senate is in recess for an extended period. Though recess appointments are meant for use in emergencies, they are actually fairly common. That makes sense, because they are a way for presidents to get around Senate opposition to proposed appointees.
President Barack Obama made 32 recess appointments, Bill Clinton made 139 recess appointments, and George W. Bush made 171 recess appointments, according to the Congressional Research Service. Trump recently said any contender for Senate majority leader has to support recess appointments. Sen. John Thune (R-SD) is on board. Trump wants Thune to be Senate majority leader.
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