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Rescheduling might open up US stock exchanges to cannabis

Plus, a new era for cannabis research

Good morning.

We hope you had a great weekend. It was a rainy one in NYC, but we’ll take it — we could catch up on some sleep from a crazy news week.

Our Editor-in-Chief Jeremy enjoyed The Newsletter Conference on Friday. It was fantastic hearing from other newsletter operators facing the same opportunities and challenges as us. It was also a great proof of concept for what we’re building with Cultivated Media. We want to own the cannabis industry niche and serve you quality reporting and irreverent writing. 

Our Managing Director Jay was in Baltimore at NECANN Maryland. Stay tuned this week for interviews from this show on all things Maryland.

Thanks for being part of the ride, and as always, email us to let us know what you think.

-JB & JR

This newsletter is 2131 words or about a 9 minute read. 

💡What’s the big deal?

Could rescheduling pave the way for Nasdaq/NYSE?

Driving the news: Companies that cultivate and sell cannabis in the US are barred from major stock exchanges like the Nasdaq and the New York Stock Exchange, because, well, they’re selling a Schedule I controlled substance.

Nasdaq and NYSE regulators won’t list firms that are in blatant violation of federal policy. 

But in light of recent news that the Drug Enforcement Agency will move cannabis, pending any legal challenges, to the much less restrictive Schedule III, that could be changing. 

What happened: Owen Bennett, a longtime cannabis industry analyst at investment bank Jefferies, said in a Friday note to clients that the Nasdaq is “warming up” to listing Canadian cannabis companies that have exposure to the US market — and US cannabis companies could be next, Marketwatch reports.

And Boris Jordan, the executive chairman at US cannabis company Curaleaf, said on Twitter/X Spaces last week that he’s had conversations with the Nasdaq about listing. 

Why it matters: The benefits for capital-starved US cannabis companies listing on the Nasdaq are immense.

For one, it’s a sign of legitimacy for an industry that still struggles with acceptance by mainstream financial institutions. Much of that is for regulatory reasons, but it also has to do with decades-old stigma around cannabis.

A Nasdaq listing is a surefire signal to Wall Street that this industry isn’t going anywhere — and it’s only going to get bigger, so they better reckon with it. 

Two, listing on major exchanges would bring much-needed liquidity into the sector and would allow these stocks to trade normally. 

A majority of shareholders in these companies are retail investors, and most big, long-only asset managers and institutional investors have for the most part steered clear of the industry. 

That means these stocks are thinly traded and deal with wild price swings based on news events or other situations not directly related to the underlying financials. (That’s the classic story of emerging markets compared to staid and predictable mature sectors). 

That’s hard to manage for executives. Cannabis companies need long-term, institutional backing to be able to confidently reinvest in their business and manage for the long-term, rather than quarter-to-quarter.

And three, being able to list on major exchanges could provide exit opportunities for cannabis startups and private companies. The promise of future wealth creation opportunities could spur innovation, which benefits consumers, employees, and the American economy alike. 

Rather than heading North to the Toronto Stock Exchange, the federal government could capture the benefits of cannabis industry taxes and job growth at home. 

But, but, but: Like pretty much everything we write about in this newsletter, there’s a lot of steps to get from here to there. Rescheduling has to take effect, which is likely to take months, but may take years depending on legal challenges. 

The exchanges will also have to update their policies accordingly — though there’s no guarantee they’ll do so without guidance from the Department of Justice or an act of Congress. 

This is all still speculation. 

And there are downside risks to “uplisting,” as some social equity advocates and anti-legalization groups have pointed out. 

Overall, it would mean a lot more money would flow into the industry, especially when coupled with removing the 280E tax. Whether that’s a good thing, or a bad thing, is in the eye of the observer. 

More specifically, uplisting could allow existing cannabis companies to deepen their monopolies or oligopolies in some states. The lack of competition hurts workers and consumers alike. 

Blame Canada: Canadian cannabis firms will be the first to benefit from the exchanges softening their stance on cannabis, which may create renewed competition between them and their American counterparts.

Canadian companies have long benefited from trading on major exchanges, listing since 2018. US cannabis companies may still have to wait months or even years, depending on how long the rescheduling process takes.

Nasdaq-listed Canadian cannabis firm Canopy Growth already has some level of exposure to the US market, through their Canopy USA business which is essentially a bundle of US assets that sell cannabis directly.

While Canopy can’t officially claim Canopy USA’s revenue on its balance sheet — it’s structured through exchangeable shares — it could, theoretically, quickly do so once the exchange allows. 

Canopy competitor Sundial announced a similar move last week to create control over US assets. There’s no reason every publicly traded Canadian cannabis company can’t do the same. 

The final word: US cannabis firms like Curaleaf are already competing with one-hand tied behind their backs, thanks to all the regulatory hurdles associated with selling a Schedule I drug. Soon, they may have to play catch-up to their Canadian competitors, too. 

But still, the ability to list on major exchanges could unleash the industry and bring tons of new investors in the front door. Things are going to get exciting, to say the least.


🗨️ Quote of the day

“If Congress wishes to change the legal status of marijuana, it has broad authority to do so before or after DEA makes any final scheduling decisions,” The Congressional Research Service said in a May 1 report.

The report outlines the limitations of rescheduling on rectifying the conflict between state and federal law when it comes to selling recreational cannabis. Under Schedule III, selling cannabis without a prescription would still be illegal under federal law, however unlikely it is that that the government chooses to enforce. 

The report urges Congress to lead on the issue by either passing a law to remove cannabis from the list of federally controlled substances or by clarifying the rules around non-prescription sale of a Schedule III drug. The key risk is that this will end up being legislated by the courts, rather than elected officials.

Why Schedule III could usher in a new era for cannabis science

Driving the news: Cannabis’ status as a Schedule I drug poses numerous hurdles for researchers. 

It’s almost impossible to get federal grants, historically one of the biggest sources of funding for scientific research. 

Researchers have also been unable to conduct human clinical trials on cannabis, meaning much of what we do know comes from “notoriously unreliable,” statistical analyses of self-reported survey data, Dr. Peter Grinspoon, a physician and medical cannabis expert, told me as I was reporting the story. 

And until last year, researchers had to rely on one single source of cannabis grown at the University of Mississippi, which they often complained was moldy and contained far less THC than the average weed Americans could buy from their local dispensary. 

Scientists and doctors also deal with onerous security protocols when handling even small research samples of cannabis, which Grinspoon likened to handling “plutonium.”

All that means that we know relatively little about what cannabis does to our bodies and our brains, compared to other legal drugs that millions of people consume every day, like alcohol or caffeine. 

What happened: Moving cannabis to Schedule III could usher in a new era for cannabis research, I wrote for The Atlantic last week. The harms and benefits are about to get a lot more clear. 

Under Schedule III, researching cannabis will still be onerous though much less so, researchers told me. 

We’ll also have to wait for specific rules from the relevant federal agencies about conducting human trials.

But as cannabis spreads around the US, the federal government will want firm answers to questions around how cannabis affects mental health, pregnancy, as well as our hearts and lungs.

All we have now are loose correlations that bring up a range of questions with few answers. 

“It’s going to be a lot easier to say, ‘Let’s give this person cannabis and see what happens to their blood pressure,’” Grinspoon said.

Our take: Any person, group, or organization that claims to have all the information about the benefits and harms of legalization probably has a bridge to sell you.

I’m no stats teacher, but loose correlations don’t equal causation. This is crucial especially as cannabis goes mainstream as both a political issue and in the press. 

Take a recent Time Magazine op-ed that is little more than fear-mongering over legalization. The author suggests that recent studies — including one that shows cannabis use can elevate heart attack risk — are settled science rather than invitations for further research. 

That should make anyone cautious. And the author ignores the fact that with legalization comes consumer choice: Yes, cannabis has gotten more potent over time, but there are also a plethora of low-dose products available at every single legal dispensary in the US and Canada. 

This isn’t to call out that author specifically. It’s reasonable that professionals who work on childhood and adolescent psychiatry would be worried about the risk of their patients experimenting with mind-altering substances.

But we need more information about what the drug actually does, rather than what we think it can or can’t do. 

The final word: That will help inject some sense and clarity into broader legalization debates, as much of what we have now tends to be agenda-driven hyperbole. 

Look at how anti-legalization groups fundraise off of every crime that appears loosely related to cannabis, or tout research that’s negative toward cannabis use as settled science. It’s not. 

On the other side, we shouldn’t just blindly believe every pro-legalization group that says cannabis can cure ailments from COVID to cancer. We need to encourage more empirical research. 

After all, millions of Americans consume legal cannabis on a daily basis — and thousands more enter the legal fold as legalization spreads across the US. 


Quick hits

Pennsylvania Gov. Josh Shapiro says the proposal to reschedule cannabis at the federal level supports his push for legalization in the state, reports The Pittsburgh Post-Gazette. Pennsylvania neighbors Ohio, which legalized cannabis last year, and could be a new major market for cannabis companies. 

Martha’s Vineyard’s only legal cannabis producer will shut down this year, reports the Vineyard Gazette. The closure is symbolic of the wackiness that results from the state-federal conflict on cannabis: Martha’s Vineyard is an island in Massachusetts, which is a legal state, but cannabis can’t cross over from the mainland because it’s federally controlled waters. So all cannabis sold on the island must be grown on the island, making the economics difficult for operators. 

Oregon Democratic Rep. Earl Blumenauer, Congress’s cannabis champion, said the Biden Administration and federal agencies are slow-walking cannabis research, after Congress passed The Medical Marijuana and Cannabidiol Research Expansion Act in 2022. “It’s embarrassing,” Blumenauer told The Huffington Post

🚀 Deals, launches, partnerships

Canopy Growth is raising $50 million from a single, unnamed institutional investor and will exchange about $20 million worth of debt, the company said.

😜 One fun thing

New York City Council Member Chi Ossé, who represents Brooklyn’s Bedford-Stuyvesant and Crown Heights neighborhoods, released a video on X blaming the proliferation of illicit cannabis shops on the state’s slow, bureaucratic licensing process.

“Like alcohol, weed sellers need a license from the state. But the state made it almost impossible to get one,” he said in the video. It’s funny, and well worth a watch.

📰 What we’re reading (and watching)

Why hemp is good for cannabis | Spill the T (HC)

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