How Quickly Will Biden Move on Cannabis?
It May Be Much Faster Than Most Realize
President Biden created a shockwave last week by announcing pardons on cannabis. It was shocking because his administration has been almost stone cold silent for his entire Presidency on the issue of cannabis. Specifically, Biden granted a pardon to people Federally convicted of simple possession of cannabis. More importantly, Biden called on the Secretary of Health and Human Services and the Attorney General to “expeditiously” review how marijuana is scheduled under federal law (It is currently classified as a Schedule 1 Drug with no medicinal benefit).
After an initial euphoria (I certainly felt it!) that sent many cannabis stocks soaring late last week, most cannabis stocks gave back much of their gains after serious concerns and uncertainty settled in among a terrible overall stock market backdrop. Anyone invested in the cannabis space or following with interest has been left to speculate, what exactly is going to happen if anything at all? How fast a process will an “expeditious” review be? And what will the results be?
There are quite a few analysts, investors and observers who are justifiably skeptical and openly wondering if this is a stunt to drum up midterm election support or who doubt anything substantial is going to happen.
I could not disagree more.
I think the Biden administration has started the process to end the prohibition on cannabis and that the administration will either reschedule cannabis to schedule 3 or lower, or de-schedule cannabis altogether and that it will happen by the end of 2023.
Why do I think this?
Because the minute the midterm elections are over on November 8th, the entire political focus will shift almost immediately to the 2024 Presidential election, and the first Presidential primary in February of 2024. What do the Presidential primaries have to do with cannabis?
Well, if Biden wants to run again, he will never make it out of the primaries alive without significant cannabis reform.
Remember that his campaign promises on cannabis were delivered to secure primary victories. The progressive left sees cannabis as an extremely important issue and sees cannabis through the lens of social justice and the pain and suffering the war on drugs has caused, especially to minority communities. Biden must move forward with something substantive, or he has no chance to be nominated again. He will be “primaried” by someone else who is much more pro-cannabis and will be viewed as “too old to run” or “out of touch.”
Instead of seeing Biden’s move as a way to boost midterm election prospects, instead I see Biden’s cannabis announcement as a tactic to shore up his flank that is exposed on cannabis.
And what if Biden doesn’t run? I think the pressure will be even greater if he decides he isn’t going to run. First off, the Democratic nominee to replace him will almost certainly be much more pro-cannabis than Biden is and much more likely to move aggressively on legalization.
But even more important is that faced with the prospect of a possible Republican Congress in 2024 and even a Republican President, the pressure to move on cannabis will become deafening by the progressives. The pressure and the worry about his legacy may make Biden move more aggressively to completely de-schedule cannabis than simply re-schedule it.
I’m not the only one who noticed that the Biden announcement seemed like more than just a midterm election stunt.
Biden not only made an announcement on cannabis, but he also started the formal process to either re-schedule or de-schedule cannabis. And I think it is really fascinating when you study who Biden has chosen to lead this review.
There are three key figures.
The first person to consider is Xavier Becerra, the U.S. Health and Human Services Secretary. This is who Biden formally tasked with starting the process. Becerra in turn announced that he and his agency intend to “as quickly as we can” comply with the President’s order.
“The president was very clear — he wants this done as quickly as possible,” Becerra said. “It’s not new science, but there’s lot of information to gather because in many states marijuana has been legalized for either medical purposes or recreational purposes.”
Who is Becerra? He is very pro-cannabis and used to be the Attorney General of California. He has been a staunch advocate for adult use cannabis, banking reform and fighting off the Federal government from interfering with California’s cannabis market. I highly recommend you read this background on him from Marijuana Moment. In my opinion, you could not ask for a better advocate on cannabis.
Becerra then tasked the head of the FDA to lead the review process and he has already spoken with FDA Commissioner Robert Califf about starting that process.
Robert Carliff has said very little on cannabis. But in what cannot be a coincidence, the FDA hired its first senior health advisor on cannabis the DAY BEFORE Biden’s announcement. And look who the FDA hired: Norman Bierman.
Who is Norman Bierman? He helped develop and run Rhode Island’s medical cannabis market and then was New York’s first “weed czar” for adult use. Again, here is another person who will be a key part of the process, who is pro-cannabis. Check out this old interview with him about New York’s cannabis market.
Then we get to the dreaded DEA, who will also weigh in on cannabis as part of this review. But again, surprise, surprise, we have a new face with a very different agenda than the old DEA.
Anne Milgram is the new Administrator, who was sworn in at the end of June, 2021. And while she has said little about cannabis, her background and beliefs are completely aligned with major sea change in cannabis regulations. Consider this article from last year profiling her that talks about her personal mission to reduce crime and incarceration.
"If Milgram’s personal mission is to reduce crime and incarceration, she could make an immediate impact by focusing the DEA’s resources away from cannabis-related crime and redirecting that focus on the manufacture and distribution of deadly opioids.”
Cannabis executive administrative reform is now in the hands of advisors and regulators who have very different opinions and beliefs than their predecessors. This leads me to believe that the Biden administration is not only quite serious about cannabis reform, but the process is also being led by advocates who openly want change.
And when I look out into next year, with what will most likely be a divided Congress, there will be little that the Biden administration can do legislatively. And staring the administration right in the face is a very popular issue that they can act on.
I can already hear critics’ retorts. Ok, genius if this is so clear, why have cannabis stocks been so weak? I would argue for two reasons. First is uncertainty. After 25 years of investing, I can tell you that if there is one thing investors hate, it is uncertainty. And we have boat loads of it.
The second is that I think Biden’s action could massively move forward the timeline on interstate commerce. The raison d'être for interstate commerce restrictions in cannabis is that cannabis is Federally illegal. If it’s not illegal, why are there interstate commerce restrictions? I have already interviewed Vanderbilt Law Professor Robert Mikos on the issue, and I also interviewed Adam Smith of the Alliance for Sensible Markets.
In addition to worries about what will happen to the scheduling of cannabis, investors in cannabis now need to also worry about interstate commerce. And when most people think about cannabis, they think of the large Multi-State Operators (MSOs) and interstate commerce would force a lot of change to that business model.
So, no, I’m not surprised at all at the volatility and weak trading of most large cannabis names. I’m not sure that is where the opportunity is. I’m on the hunt for those companies that are scrappy and are low-cost operators that can be flexible in today’s environment and that benefit from interstate commerce. (FYI, I’m headed to Oregon in a few weeks to do more due diligence on growers who would benefit from interstate commerce.)
Fifty years ago, the Nixon administration convened a national commission to make recommendations on cannabis. The commission came back with a unanimous recommendation to remove all criminal penalties.
The Nixon administration completely ignored the recommendations and moved cannabis to a Schedule 1 drug in order to target the African American community and hippies that were against the Vietnam war.
If Biden wants to run for President again or wants to cement his legacy as President, he has a golden opportunity to right this wrong. My reading of the tea leaves is that he and his administration will move with a speed that will surprise most people and that by the end of 2023, we should see dramatic Federal reform and the end of Federal cannabis prohibition.