From Schedule I to Schedule III: Looking into the Cannabis Crystal Ball

Vangst/Sep 13, 2023

hero-graphic-From Schedule I to Schedule III: Looking into the Cannabis Crystal Ball

In this week's episode of the Proud to Work in Cannabis podcast hosted by Karson Humiston, we dive into the groundbreaking announcement from the Department of Health and Human Services (HHS) calling for cannabis to be moved from Schedule I to Schedule III. Joining Karson are two industry experts, Jeremy Berke, Founder, CEO & Chief Editor at Cultivated News, and Beau Whitney, Chief Economist at Whitney Economics, the leading economics firm in the cannabis world. Together, they unpack the significance of this move and its potential impact on the cannabis industry.

Why This Announcement Matters

Jeremy Berke starts the conversation by emphasizing that this shift is "the first true and concrete move to normalize how cannabis is viewed by the federal government." Despite previous promises, this is the first substantive action from the Biden administration, indicating a significant change in perspective.

Jeremy highlights how the Schedule I classification, which implies low medical benefits and high abuse potential, is outdated and incorrect. This shift aims to normalize cannabis in the eyes of mainstream society and policymakers, even though it's not yet set in stone.

Beau Whitney points out that the HHS letter to the DEA is not public, adding an element of speculation to the situation. However, he stresses the historic benefits of rescheduling cannabis to Schedule III, such as the removal of the burdensome 280E tax policy. This change could provide much-needed financial relief to an industry where only 24% of companies are currently profitable, mainly due to the 280E tax policies.

What We Know Would Change If Cannabis Moved to Schedule III

Beau explores the opposition's perspective on Capitol Hill, highlighting concerns about giving "stoners" a tax break. However, he emphasizes that Whitney Economics' analyses show that rescheduling would, in fact, increase tax revenue, benefiting both the industry and the government.

Beau also reveals the staggering impact of the 280E tax policy, with the industry paying $1.9 billion in additional taxes last year. Removing this burden could lead to increased hiring, lower prices for consumers, and more tax revenue at the federal level.

Jeremy expands on the positive economic ripple effects, including increased payroll taxes, sales taxes, and business taxes. He stresses the overall economic stimulus generated by the cannabis industry.

Karson shares how investor sentiment has become incredibly positive since this news broke, with cannabis stocks experiencing significant gains. This renewed interest is also evident in mainstream business professionals reaching out for industry updates and increased subscribers for Cultivated.

Will This Environment Make It Easier for Investors and Private Markets?

Jeremy notes that VC funding in the cannabis space had dried up, but recent news of a Seed round for an ancillary tech company suggests a potential revival. However, he cautions that reaching the 2020 funding levels may not be feasible.

Beau emphasizes that the appetite for investment depends on the DEA's policy implementation, as more restrictive rules could suppress investment, while supportive policies could stimulate it.

The discussion acknowledges the uncertainty surrounding the next steps in building the industry's structure under the new classification.

Known Unknowns

The conversation turns to how rescheduling to Schedule III impacts SAFE Banking and interstate commerce. Jeremy believes that it's unlikely the federal government will crack down on state-legalized dispensaries, given their history.

Beau discusses the potential for cannabis to be restricted to pharmacy sales via doctor prescriptions, a move that could lead to insurance coverage for cannabis. While a possibility, it's considered politically unpalatable.

Regarding SAFE Banking, Beau clarifies that rescheduling doesn't automatically trigger it, highlighting the importance of future policy development.

Rescheduling vs. Descheduling: The Values & Pitfalls of Incremental Progress

The conversation explores whether rescheduling is a positive step or if the industry should push for complete descheduling. Jeremy recognizes the merits of both perspectives but acknowledges the trade-offs between industry growth and social justice reform.

Beau shares data indicating that not all industry players are in favor of descheduling, with 27% preferring rescheduling.

Looking Through Our Crystal Balls: The Timeline of Change and What Comes Next for Cannabis Legalization

Jeremy predicts that the DEA will make substantive recommendations by the end of the year but acknowledges the uncertainty of such predictions. Beau humorously notes that full federal legalization always seems to be "five years out."

Beau believes that the industry won't feel the effects of these changes until Q1 2025, citing various factors like policy, tax, interest rates, and investment sentiment.

Final Thoughts

Beau emphasizes that this is a pivotal moment for the cannabis industry, welcoming positive news after years of challenges. He encourages operators to optimize profitability and be cautious about increasing costs during this uncertain period. Jeremy sees this as a positive change and an opportunity for the cannabis industry to grow in new ways, despite legitimate concerns about the potential for monopolization.

Proud to Work in Cannabis

As we explored the potential implications of shifting from Schedule I to Schedule III, it's clear that this change offers newfound hope, positivity, and momentum. The insights from Jeremy Berke, Beau Whitney, and Karson Humiston shed light on the monumental shifts occurring within this dynamic sector. While challenges and uncertainties remain, this pivotal moment allows us to reflect on the journey the cannabis industry has taken, from struggle to resurgence.

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