The potential shift in how cannabis is classified under federal law is stirring up discussions about the future of the cannabis industry and the possibility of opening up interstate trade. Although many U.S. states have already legalized cannabis for recreational, medical use, or both, it’s still illegal at the federal level, which limits the ability to create a unified national market.
According to Robin Goldstein, head of the Cannabis Economics Group at UC Davis, the direction of the sector is largely dependent on what the federal government does next. Whether cannabis will be reclassified or completely removed from the list of controlled substances remains unclear, leaving many cannabis business owners uncertain about what lies ahead.
Frank Colombo, a managing director at Viridian Capital Advisors, a firm focused on cannabis investments, expressed doubt that marijuana would be removed from the controlled substances list anytime soon. He said he’d be surprised if it happened in the next decade, let alone the next five years.
Industry experts have mixed views on how rescheduling—moving cannabis to a less restrictive category—versus descheduling—removing it entirely—would impact the sector. If cannabis gets moved to Schedule III, it would likely allow marijuana operators to access tax breaks that they currently can’t use due to Section 280E of the IRS code.
However, this wouldn’t necessarily change how marijuana is grown, sold, or transported across state lines. For those things to change, Congress would need to pass additional laws such as the SAFE Banking Act.
Legalizing interstate cannabis commerce would also bring up new questions about taxation. States would need to figure out how to handle products being imported from other regions. At the same time, any expansion into the pharmaceutical side of the market would likely require FDA approval, which is a costly and lengthy process with uncertain returns.
Goldstein points out that even if marijuana-based drugs were approved, most generic cannabis products already on the market couldn’t be patented, making it hard to compete with the profits seen in traditional pharmaceuticals.
If marijuana were completely descheduled, it would likely open the door to interstate commerce, but it could also trigger federal regulations and taxes. This might slow growth and increase costs for operators, giving illegal operators an edge due to their lower prices.
According to Colombo, states with lower cultivation costs, like Oklahoma, California, Washington, and Oregon, could benefit most if national trade becomes legal. On the flip side, companies that invested in indoor grow operations in states with poor outdoor growing conditions could be hurt. State governments, too, might see a drop in tax revenue if local cultivation shrinks.
Industry actors like Verano Holdings Corp. (Cboe CA: VRNO) (OTCQX: VRNOF) now have the task of preparing for both scenarios so that if rescheduling or descheduling happens, they are ready for it rather than scrambling to cope once the change has been made.
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