Cannabis Rescheduling: Myths, Facts and Reality
Anticipation (and hype) is rising for the long awaited (date TDB) FDA decision to reclassify cannabis from Schedule I to III. The excitement, however, isn’t always accompanied by a proper understanding of what RIII means.
Here is my take-
> Myth 1: R3 is legalization.
Fact: It is not.
Reality: Though the ultimate goal is legalization, RIII (on paper) remains a substantive and symbolic step especially given today’s political-economic climate.
> Myth 2: RIII opens the door for Big Pharma to take over.
Fact: It just opens the door to more cannabis research, which is a good thing.
Reality: This fear is overblown. It takes a pharmaceutical company hundreds of millions of dollars and many years to get a new drug to market within the current FDA system. Nothing stops MSOs from doing similar research.
If Big Pharma really wants to dominate weed, they could buy up the entire sector with nary a dent to their balance sheet.
> Myth 3: Institutional capital will flow in.
Fact: RIII is not banking reform like the proposed SAFER ACT.
Reality: Rescheduling will bring positive news to an industry seen as dead plus more legitimacy to a stigmatized product. Removing 280E will improve MSO bottom lines making some firms more investable and financially sustainable.
> Myth 4: The entire sector wins big.
Facts: A rising tide raises all boats, but some will sit higher in the water than others.
Reality: Smaller, more leveraged pubcos could benefit more than the larger operators. Yet, size still matters. Bigger MSOs could end up being the ultimate winners when it comes to attracting capital and partners.
RIII is welcome for many reasons.
Removing 280E will be a big boost to profitability and short-term share prices (especially when paired with possible Florida rec legalization in Q4 2024). Barriers around medical cannabis research will be removed. And there could also be immediate relief for cannabis patients and a reduction in penalties for cannabis-related crimes.
There are also potential flies in the ointment.
Reclassification may stimulate new FDA regulatory oversight of the medical cannabis industry, so be careful what you wish for. RIII may also not resolve criminal penalties against cannabis users in compliance with state law.
Finally and critically, there is uncertainty around how the legacy state-license markets and regulatory approaches will be treated under RIII.
Like many things, the devil is in the details. And It will be some time before reclassification’s full impact becomes apparent. Stay tuned.
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