"Extremely Unlikely That Nothing Happens"
Is Cannabis About to Be Rescheduled to Schedule 3?
Cannabis investors have been burned, beaten and crushed by falling cannabis pricing, deteriorating fundamentals at the leading cannabis companies and higher interest rates. But the diamond cutter of pain has come from the Federal government’s complete inaction on cannabis reform. Politicians have promised reform and played around with cannabis for show, particularly in regards to SAFE Banking. And it has been painful to watch as the industry is enduring what amounts to the equivalent of an economic depression due to a severe lack of capital as investors leave the sector and funds shut down.
But what if at the darkest possible moment for the industry, we are about to see a massive sea change?
I now believe that the HHS (Department of Health and Human Services) will recommend rescheduling cannabis to Schedule 3 by year end, and that this recommendation will probably be accompanied by an Attorney General Merrick Garland memo detailing how the DOJ will deal with state-legal cannabis businesses.
Why do I believe this?
Because I had the pleasure of discussing all things rescheduling with two experts who know what they are talking about.
Howard Sklamberg was the former Deputy Commissioner of the FDA and the top enforcement official. And in particular he was the Chair of the FDA’s Marijuana Working Group, which coordinated and set FDA policy related to cannabis and hemp regulation and enforcement. Howard is now a partner at Arnold & Porter where he counsels clients on a wide range of compliance and enforcement issues related to U.S. Food and Drug Administration (FDA) regulation and policy.
Shane Pennington is a partner in the Litigation Department of Porter Wright Morris & Arthur LLP’s D.C. Office where he counsels clients on federal regulatory issues involving a number of industries, including controlled substances. A former law clerk to federal judges on the D.C. Circuit, the Fifth Circuit and the D.C. District Court, Shane has published extensively on topics related to administrative law and drug policy, including the private nondelegation doctrine, the Single Convention on Narcotic Drugs of 1961, judicial deference to administrative agencies, and bureaucratic management and the limits of presidential power. His newsletter On Drugs is a must subscribe for any cannabis investor.
Helping me in my conversation with these two powerhouses was Marc Hauser, an incredible lawyer in his own right, who runs Hauser Advisory and writes the wonderful newsletter Cannabis Musings (FYI, Marc was Sam Zell’s attorney for over a decade!). Marc is widely recognized as one of the leading advisors to the U.S. cannabis industry. Prior to consulting, Marc practiced deal and capital markets law for nearly 25 years, most recently as Chair of the Cannabis Practice Team at Reed Smith LLP, a global law firm.
With the help of these three legal aces, we held a deep dive discussion on the rescheduling process for cannabis and what we should expect to come.
Here is what I learned from them:
The biggest headline is that both Howard and Shane think that it is “extremely unlikely that nothing happens.” So, in other words, buckle up, cannabis scheduling is imminently about to change.
Both Howard and Shane think that the HHS will recommend Schedule 3 and make the recommendation by year end.
The best part of our conversation was the details and understanding of how the FDA thinks and how it would react to Schedule 3.
The most important insight for me is that without an additional budget for enforcement or oversight and without Congressional guidance, the FDA will not be suddenly jumping in to regulate the cannabis industry and that a lot of the fears of what a Schedule 3 reclassification would mean for state cannabis businesses are completely overblown.
There was also talk at the end as to what Attorney General Merrick Garland might or might not do and what this may mean for interstate commerce (a topic near and dear to my heart), and both expressed skepticism that Garland would be in favor of this. But I continue to believe interstate commerce will be more of a political decision driven by states. FWIW, I just learned that three Western Governors are soon to ask the DOJ to allow them to enter into interstate commerce pacts. And I inferred from our conversation with Shane and Howard that a Garland memo is likely to appear right around the rescheduling decision. So, we are soon to find out either way.
While I gave up on hoping for SAFE Banking reform last summer, I have been very focused on the rescheduling process since it was announced last October. I wrote about how cannabis is important to President Biden’s re-election and recently wrote a followup on how the HHS is required at least to announce their scientific review by December 2nd.
I highly recommend you listen to the whole discussion around what rescheduling would mean and why Howard and Shane think the way they do. I’m still processing what I learned.
With most cannabis stocks plumbing all time lows, the market and investors clearly do not believe any Federal reform is possibly three months away from happening. Maybe they just haven’t listened to Howard or Shane yet. Or maybe the desperation and despair has investors unwilling to believe anything good will ever again happen to the industry.
Here is the full interview:
Here is the Spotify link:
Rescheduling conversation on Spotify
Again, I highly recommend you subscribe to Shane’s newsletter On Drugs and Marc’s newsletter, Cannabis Musings.