Good morning.
Well, known 4/20 enjoyer Todd Blanche may have missed the mark by three days, but he did deliver. He signed the rescheduling order on Thursday.
If you are trying to get in touch with us via email — don’t. We’ve got literally hundreds of comments and emails and more pour in by the minute. We’re declaring email bankruptcy. We’ll do our best to get back to you.
And tune in today at 9 AM PT/Noon ET for This Week in Cannabis Live, where we’ll be joined by the venerable Eric Berlin from Dentons, a leading cannabis attorney who knows more than we do about all this.
Let’s get to it.
-JB, JR, ZH
Today’s newsletter is 1,148 words or about a 9.5-minute read.
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💡 What’s the big deal?
RESCHEDULING
Rescheduling is official. But we’ve got more questions than answers
That was fast. We wrote yesterday that it looked like rescheduling was back on the table. Today, it definitely is.
It’s official: Acting Attorney General Todd Blanche signed an order that would immediately move FDA-approved and state-legal medical cannabis to Schedule III, from the far more restrictive Schedule I of the Controlled Substances Act.
It fulfills both a campaign promise of President Trump’s, as well as his December Executive Order directing relevant agencies to push through the reclassification with haste.
And while all that sounds wonky, let us be clear: This is, perhaps, the most impactful move on federal drug policy since Nixon launched the War on Drugs in the 1970s. And it came from perhaps the least chill President possible, a teetotaling Republican real estate executive.
What happened: As the markets digest Blanche’s 34-page order, it seems to be a sell-the-news event. The AdvisorShares Pure Cannabis ETF $MSOS ( ▼ 17.42% ), which gained over 20% on rumors on Wednesday, sold off nearly 15% and counting. Canadian cannabis firms like Tilray $TLRY ( ▼ 11.82% ) and Canopy Growth $CGC ( ▼ 11.59% ) both fell 11% as of mid-afternoon when I was writing this.
A few things could be happening here.
One is that the fast money is taking profits, or at least zeroing out as positive catalysts have been few and far between for the embattled cannabis sector. Two, traders could actually be reading the order, which doesn’t go quite as far as headlines suggest. Three, this could mean cannabis stocks will never be cheaper.
The order specifically applies to state-legalized medical cannabis and FDA-approved cannabis drugs like Epidiolex, an epilepsy treatment. It does not apply to all recreational cannabis sold in states — so your local dispensary isn’t yet covered. The order directs the DEA to begin hearings in June, set to finish by July 15, to debate wider application to cannabis in general.
Why it matters: Which leaves things confusing for both consumers and companies that cultivate and sell cannabis.
Their medical operations will be covered. Their consumer operations will not, at least until July. That’s doubly important because of a vestigial IRS code, 280E, that prohibits individuals or companies that sell Schedule I or II drugs from deducting regular business expenses. So with a stroke of Blanche’s pen, that no longer applies to medical cannabis companies, unlocking millions in free cash flow for growth.
Until we get the results of the DEA hearing, expected by mid-July, cannabis firms selling to consumers will still get hit with that tax. Until then, it’s a situation where the same drug is considered a Schedule I drug if it’s bought at a legal dispensary, or a Schedule III drug if a doctor prescribes it. If that all sounds confusing, it’s because it is.
The biggest winners of all this at the end of the day will be the attorneys, auditors, and service providers who help businesses make sense of this mess.
As our friend Marc Hauser points out in Cannabis Musings, the DEA will likely end up in the position of buying and selling cannabis. You read that right. Attorney Jeff Schultz and co have a good breakdown as well.
But the boost to research is clear.
The order allows researchers to purchase regular dispensary cannabis without fear of persecution, and should unlock funding. It could also, theoretically, catalyze a wave of cannabis bills in Congress and statehouses around the country, as Trump’s move gives Republican fence-sitters room to get on board.
The final word: There’s also a silver lining here for U.S. cannabis firms that have significant medical operations.
Trulieve $TCNNF ( ▼ 6.58% ), traded over the counter, owns over one-third of the medical cannabis licenses in Florida. With its aging population, and now big tax cuts, expect this move to be good for CEO Kim Rivers, who clearly has the White House’s ear on the issue.
The full order is publicly available if you want to read it. But we’ll talk to folks smarter than us who will help break it down for you.
-JB
If you’re heading to MJ Unpacked at the Hard Rock Atlantic City in a few weeks, please join us for breakfast
The breakfast is sponsored by Aquinnah Capital Partners and will be a relaxed kickoff to the event with the Cultivated community.
We hope to see you there.
📣 Quotable
A couple of the best quotes we’ve seen:
“A lot of people are suffering from big problems, which this seems to be the best answer,” President Trump said of the order. “They’re very happy about it. So the rescheduling is starting, and that’s a big thing, rescheduling. They kept saying, ‘what about the rescheduling’”.
“Today’s decision feels like a long-overdue first down in a game that’s been stuck at the line of scrimmage for decades,” former NFL player Ricky Williams said. “It’s not a touchdown, but it finally moves the chains in a meaningful way.”
“Thank you not only for listening to the millions of Americans who benefit from medical marijuana but for acting decisively and comprehensively ushering in a new era for medical marijuana research in this country,” Trulieve CEO Kim Rivers said. “Promises made, promises kept! 🇺🇸 🌱🇺🇸”
“Two people can be using cannabis together — the same product purchased from the same place — one labeled medical marijuana and the other labeled for adult-use,” Nabis general counsel Mike Feldman said. “And now in one is placed in Schedule 1 and in another in Schedule 3, and that's completely unprecedented, and that's not how the Controlled Substances Act works.”
And some Republicans, of course, do not like it:
“Marijuana today is much more potent than just ten or twenty years ago, leading to increased psychosis, anti-social behavior, and fatal car crashes,” Sen. Tom Cotton said. “Arkansans don’t want more dangerous drugs obtained more easily. A change to marijuana’s drug classification is a step in the wrong direction.”