The U.S. Drug Enforcement Administration is reviewing a recommendation from the Department of Health and Human Services to reclassify cannabis as a Schedule III controlled substance under U.S. law in a move that sparked a rally by cannabis stocks on Wednesday.
The historic move — more than 50 years after the Schedule I designation — could open up cannabis to interstate trade as well as remove an expensive 280E tax burden that prevents legal cannabis companies from writing off normal business expenses, experts said.
A DEA spokesperson confirmed to MarketWatch that it received a letter from recommending the re-scheduling, following a report by Bloomberg on Wednesday. Cannabis is currently a Schedule I drug.
“HHS conducted a scientific and medical evaluation for consideration by DEA,” the spokesperson said. “DEA has the final authority to schedule or reschedule a drug under the Controlled Substances Act.”
The spokesperson declined to provide a timeline.
Cannabis stocks are rallying, with the AdviserShares Pure US Cannabis ETF
MSOS
up by 17.5% and the ETFMG Alternative Harvest ETF
MJ
up by 8.2%.
Among individual stocks, Canopy Growth Corp.
CGC,
was up by 11%, Curaleaf Holdings Inc.
CURLF,
was up by about 13% and Tilray Brands Inc.
TLRY,
was up by 10.6% and StateHouse Holdings
STHZF,
jumped 20%, while TerrAscend
TSNDF,
rose by 10.3%.
Cresco Labs Inc.
CRLBF,
was rallying by 13.7%, Green Thumb Industries Inc.
GTBIF,
was up by 17.6% and Trulieve Cannabis Corp.
TCNNF,
was up by 15.6%.
Health and Human Services spokespeople did not reply to emails from MarketWatch.
Adam Goers, co-chair of the Coalition for Cannabis Scheduling Reform, told MarketWatch the move marks a “tremendous price of progress” for cannabis, which has drawn support from both Republicans and Democrats.
While the DEA is now reviewing cannabis scheduling, it’s unlikely it will overturn HHS’s recommendation because the HHS and the U.S. Food and Drug Administration are considered the scientific authorities in the federal government, while the DEA handles law enforcement, he said.
Unlike Schedule I drugs, Schedule III drugs do not have interstate restrictions on them. Drugs with the classification are not subject to 280E tax rules that prevent any tax write-offs for typical business expenses.
Brady Cobb, CEO of Sunburn Cannabis, praised the HH’s move as “the most monumental moment the cannabis reform movement has felt during the 70-plus battle to end the failed war on the cannabis plant.”
HHS has now validated the medicinal benefits of marijuana, he said.
In October 2022, President Joe Biden asked Attorney General Eric Garland and Health and Human Services Secretary Xavier Becerra to start the process of reviewing how cannabis is scheduled under federal law.
In a letter to the DEA seen by Bloomberg, Assistant Secretary for Health Rachel Levine cited a Food and Drug Administration review of the drug’s classification.
Under federal law, Schedule I drugs such as heroin, LSD and marijuana are defined as having no medical benefits. Schedule III drugs include products containing less than 90 milligrams of codeine per dose, as well as ketamine, anabolic steroids and testosterone, according to the DEA’s website.
The DEA defines Schedule III drugs as those with “moderate to low potential for physical and psychological dependence,” while Schedule I drugs have “no currently accepted medical use and a high potential for abuse.”
Cannabis stocks have been losing ground amid a lack of progress for legalization under federal law.
The sector rallied last year when Biden recommended a review of marijuana’s classification under federal law.
It’s not yet clear how long it might take for cannabis to be formally reclassified.
Cannabis has been listed as a Schedule I substance since the founding of the DEA in 1970 by President Richard Nixon in 1970.
This fall, Ohio and Florida appear poised to put a question to voters on adult-use cannabis. At last check, adult-use cannabis has been allowed in 23 states, while 38 states, three territories and the District of Columbia allow the medical use of marijuana.
The latest Gallup poll showed that alcohol use has dropped among young adults while cannabis consumption has grown. About 68% of U.S. adults favor cannabis legalization, according to Gallup.
Also read: Federal spotlight shifts to regulatory rescheduling of cannabis
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