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It’s official — cannabis will be rescheduled

It’s the news we’ve all been waiting for

Good morning.

Well, it’s almost official: Cannabis will be rescheduled, likely to Schedule III.

We’ve been reporting out what this all means for consumers, the industry, regulators, policymakers, and more over the past day. 

We’re left with more questions than answers, but we’ll do our best to break down this historic move for you. We’re going to devote this whole newsletter to rescheduling, so buckle up. 

And join us at 10 am Eastern for a Cultivated Live with initial reactions from leading regulatory and financial experts as well as key cannabis operators.

-JB & JR

This newsletter is 1881 words or about an 11-minute read. 

💡What’s the big deal?

Cannabis will be moved to Schedule III

What happened: It’s the news you’ve all been waiting for — the Drug Enforcement Agency will move cannabis from the most restrictive Schedule I of the Controlled Substances Act to Schedule III, per The Associated Press.

Now, this isn’t an official announcement. But the AP cited five sources with close knowledge of the matter, and the wire service’s reporting was followed by NBC News, The New York Times, Politico, Bloomberg, Reuters… you get the idea. It’s about as real as it gets. 

We should caution that most sources didn’t specifically say it would be Schedule III, just a less-restrictive schedule, but the chatter has pointed toward Schedule III for months. 

The historic move would be the biggest change to federal cannabis policy in over half of a century when it’s official. It would also send a massive signal to the rest of the world. It’s America, after all. 

But there are a lot of steps to get from here to there. We’re going to help break it all down for you. 

What’s next: The DEA’s proposal will be reviewed White House Office of Management and Budget (OMB), which could happen as soon as tonight. The OMB is expected to sign off quickly, as President Joe Biden supports cannabis reform and campaigned on rescheduling in 2020.

The proposal will then move to a 60-day public comment period and be reviewed by a judge. The final rule will then be published. 

We don’t yet know the specific timing of this, but it’s likely that this will be done and dusted prior to the November election. 

What we know Schedule III would do: The implications for the cannabis industry are profound — though it’s important to reiterate that recreational cannabis would still be federally illegal. 

Cannabis will still be illegal to consume recreationally in the eyes of the federal government, just like other Schedule III drugs including ketamine and Tylenol with codeine. 

Still, there are plenty of benefits for the industry and consumers alike.

Here we go. 

Sentiment is good for everyone

The stock market is often a measure of sentiment, and, well, look at what happened yesterday. 

Canadian cannabis firm Tilray, which will only tangentially benefit from Schedule III, closed up 40%. Other cannabis stocks, including MSOS, an exchange-traded fund that tracks a basket of US cannabis stocks, also gained around 25% yesterday. 

Easing restrictions on cannabis benefits everyone from mom-and-pop dispensaries to multibillion-dollar retail chains

“It’s not only the potential tax benefits and financial relief through write-offs, especially during the crucial early years of opening a business, but it also opens doors for more research opportunities, reducing stigmatization and legitimizing the industry further,” Alyza Brevard Rodriguez, a dispensary owner in New Jersey said in an email. 

There will be a ripple effect of more capital coming into the industry for everyone involved. That will flow to service providers, consultancies, law firms, cannabis tech companies — and selfishly, media companies like us. It’s a huge deal. 

Major stock exchanges would perhaps find it less risky to list cannabis companies that sell in the US, though the jury is still out on that front (more below). 

Financial experts also say more capital flooding into the sector would catalyze a wave of consolidation. More deals means more exit opportunities for founders, more fuel to grow, and a more dynamic business environment for everyone involved. 

Expect cannabis companies to be on CNBC and on the front of Reddit’s WallStreetBets. It’s going to be front page news in the financial world. 

All that means there will be more jobs, and more opportunities for everyone in cannabis. That’s a good thing. 

The 280E tax is going away 

The accounting implications of moving to Schedule III can’t be overstated. Cannabis companies will no longer have to pay the 280E tax, which would immediately boost margins for operators across the industry.

A lot of the regular costs of doing business will immediately become deductible — opening up a huge amount of free cash flow, which is a fancy way of saying that these companies will have a lot of money to actually invest in their businesses, rather than service debt or pay taxes. 

Many big cannabis companies will immediately look like attractive investments to Wall Street, once the change is implemented. 

Institutions like big, long-term asset managers and lenders would be able to invest in the space, meaning that the cost of capital would come down across the board and it would be much easier to start and grow cannabis businesses. 

That’s MBA-speak for saying that money will be cheaper, for everyone — including social equity entrepreneurs in states like New York, where sources of fair small business funding are scarce. 


Researching Schedule I drugs is notoriously difficult. Federally funded researchers only have access to a small, low quality supply of cannabis grown in Mississippi. 

A move to Schedule III would incentivize more researchers to conduct rigorous, peer-reviewed studies into the health impacts of cannabis use, as well as potential pharmaceutical applications of various compounds found in the cannabis plant.

It’s hard to predict how interested pharmaceutical giants will be in funding their own clinical trials for a difficult-to-patent plant. But researchers of all stripes — whether pharma, academic, medical, or whatever — will have access to a much higher quality supply of cannabis, as well as far more federal grant funding.

Interest in the public health, economic, medical, and political impacts is quite high, pun unintended. We’re soon going to have a lot more data, and a lot more clarity about exactly what the effects of legalization are. 

That’s a good thing for everyone, no matter where you stand on the legalization debate. 

There are far more questions than answers: The DEA clearly took their time with this decision to make it as bulletproof as possible. They likely expect a contentious public comment period, as well as potential legal challenges from anti-legalization groups and lawmakers.

There are clear outstanding issues to be resolved and many more questions. 

I wrote about this last year, when the Department of Health and Human Services first recommended cannabis be moved to Schedule III

Will all cannabis become medical cannabis?

It’s not yet clear exactly how the federal government would distinguish between medical cannabis use like other Schedule III drugs, which are available via prescription, and recreational use — which would still be illegal under federal law.

Experts say that Attorney General Merrick Garland would have to specifically outline a position on whether the government would continue to allow states to chart their own course on legalization, or whether rescheduling would precipitate a crackdown.

But here’s the logic from most people I’ve spoken with: It’s unlikely that by lessening restrictions, the federal government is signaling to the industry it wants to prosecute state-legalized cannabis businesses. 

Most expect it to be far easier for medical cannabis patients to pay for their medicine via insurance, but don’t expect much more change than that, despite the fears some have that all legal dispensaries will be turned into prescription-only pharmacies. 

Finance/banking implications — a lot of uncertainty

While a move to Schedule III is certainly positive for the financial world’s sentiment on the industry (just look at how cannabis stocks soared yesterday), there still needs to be a proactive rulemaking process for how Wall Street and major US stock exchanges are going to handle businesses that sell a Schedule III drug to consumers.

So Schedule III would certainly open up capital markets. But absent Congress leading on the issue by passing cannabis banking reform like the SAFER Banking Act, each institution will still determine their own risk calculus on a case-by-case basis. 

The barbarians aren’t at the gate quite yet. 

Social justice

Moving cannabis to Schedule III does little to advance crucial social equity reform. There are no changes to the criminal justice system associated with this change. 

It won’t get people out of jail for cannabis-related offenses, and it won’t stop racialized arrests in states where cannabis is still illegal for recreational consumption. 

Many social equity advocates are rightfully skeptical of incremental reform. They say that the federal government may pat itself on the back for a job well done — without continuing to push for fully removing cannabis from the list of controlled substances and regulating it like alcohol. 

There are also fears that Schedule III would allow big cannabis companies to grow faster, and put pressure on lawmakers to write regulations in their favor by granting them monopolies or oligopolies where they operate. 

“Rescheduling marijuana is not a policy solution for federal marijuana criminalization,” The Drug Policy Alliance, an advocacy group said in a mailer asking supporters to use the public comment period to push for full decriminalization. 

Interstate commerce

The jury is still out on what Schedule III means for interstate commerce. Again, it doesn’t change the fact that recreational cannabis is still illegal. 

This would have to be clarified by the DOJ — or, perhaps by a lawsuit that makes its way up to the Supreme Court. 

The final word: No matter where you stand on legalization, or whether you think the move to Schedule III is a good thing or a bad thing, there’s no question this is historic. 

It’s perhaps the federal government’s biggest move on drug policy since the 1970s. That’s huge.

Let me put my chips on the table. It’s a good thing for me. It’s also just fun to be able to cover breaking news for a change. 

I’m excited about it. Both because I’ve dedicated a big chunk of my young career to covering the intricacies of cannabis legalization — in an effort to bring some seriousness and rigor to what only a few years ago was the butt of jokes — as well as because Jay and I are trying to build a real business around this newsletter. 

But my excitement is tempered by the fact that we are talking about rescheduling, not legalization. 

It’s incremental in the grand scheme of things. But America being America, and democracy being democracy, this is perhaps as far as we’ll get in the near term.

That’s worth being excited about to me. 


Quick hits

Senate Majority Leader Chuck Schumer, along with Sens. Cory Booker and Ron Wyden, will re-introduce the Cannabis Administration and Opportunity Act, which would federally decriminalize cannabis, today at 12:30pm

Florida Gov. Ron DeSantis says he will be “getting involved” to help defeat Florida’s ballot measure to legalize recreational cannabis in November.

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