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While the White House's move to propose reclassifying marijuana as a less dangerous drug would certainly be a huge accomplishment for the cannabis industry, the path to implementation remains “long and opaque,” according to BTIG analysts.
In a recent memo, BTIG acknowledged that reports that the Biden administration is preparing to propose such a measure represent a “watershed moment” for the cannabis industry. However, even if the White House is determined to move forward very quickly, the process could be bogged down for years due to legal challenges.
There is no doubt that the industry has a lot to gain by reclassifying cannabis from a Schedule I substance, a category generally reserved for high-abuse drugs like heroin, to the less serious category of Schedule III, a category that includes prescription drugs like Tylenol with codeine.
First of all, the reclassification would allow cannabis companies to receive standard tax deductions currently prohibited for companies that derive their income from Schedule I drugs. It would also create more research opportunities for the industry, which BTIG sees as a “long-term tailwind,” and allow banks to offer a broader range of services to cannabis companies. BTIG added that “embracing gradual reform” would also “lower the political cost of future action.”
But BTIG also warned that the process will likely face delays due to legal challenges and lack of clarity over implementation.
The investment firm is particularly concerned that an outside party might petition for an administrative law judge's review of the proposal, which could delay the reclassification for up to a year. BTIG also expects legal challenges to be filed following the reclassification, which could delay the process for another two years.
“Finally, there is no clarity on the size or scope of implementing regulations that will be required, given existing state programs,” BTIG said, adding that a second Trump administration could also slow the process.
BTIG also said the cannabis banking bill was “bearish,” noting that it had yet to see any real movement on the legislation and that Senate Minority Leader Mitch McConnell remains opposed to it.
Multistate Operators: Cresco Labs (OTCQX:CRLBF), Trulieve (OTCQX:TCNNF), Green Thumb Industries (OTCQX:GTBIF), Curaleaf Holdings (OTCPK:CURLF), MedMen Enterprises, Acreage Holdings (OTCQX:ACRHF), Ayr Wellness ( OTCQX:AYRWF); Ascend (OTCQX:AAWH), Verano Holdings (OTCQX:VRNOF), Joshi Holdings (OTCQX:JUSHF).
Cannabis Services: Leafly (LFLY), GrowGeneration (GRWG).
Canadian cannabis companies: Tilray (Nasdaq:TLRY), canopy growth (Nasdaq: CGC), Aurora Cannabis (ACB), Cronos (CRON), Organigram (OGI), Village Farms (VFF), Curaleaf (OTCPK:CURLF), High Tide (HITI), TerrAscend (OTCQX:TSNDF), SNDL (SNDL).
Cannabis ETFs: AdvisorShares Pure Cannabis ETF (YOLO), Amplify Seymour Cannabis ETF (CNBS), ETFMG Alternative Harvest ETF (MJ), AdvisorShares Pure US Cannabis ETF (MSOS), AXS Cannabis ETF (THCX).
