Benzinga - by Nicolás Jose Rodriguez, Benzinga Staff Writer.
Recent news that the Department of Health and Human Services (HHS) is recommending the reclassification of marijuana as a Schedule III drug under the Controlled Substances Act has ignited significant market reactions.
On the day following the report, MSOS ETF (ARCA: MSOS) surged 21%. Notable companies also experienced remarkable gains, with State House Holdings Inc. (OTC: STHZF) skyrocketing by 74%, Columbia Care (OTC: CCHWF) witnessing a 38% boost, Jushi (OTC: JUSH) rising by 32% and Ayr Wellness (OTC: AYRWF) showing a 29% increase.
Analysis firm Zuanic & Associates (Z&A), in a recent report, says the news is a potentially game-changing development.
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Navigating Regulatory Shifts: A Bullish Outlook Amid Uncertainties The report presents an optimistic "bull case narrative" for the industry, and argues that a White House-mandated rescheduling review could potentially lead to cannabis being removed from Schedule I, thereby alleviating certain regulatory burdens, particularly the IRS's 280E tax implications.
However, uncertainties remain regarding whether this reclassification would differentiate between medical and recreational cannabis or solely concern classification.
The bull case narrative posits that if cannabis were rescheduled to Schedule III or higher, it would fall outside the scope of 280E's restrictions.
“If they do reschedule cannabis to a Schedule III or higher (IV or V), any type of cannabis (regardless of various state designations of medical vs. rec) would be outside of the purview of 280E because cannabis would not be a Schedule I or II, and 280E only applies to the illegal trafficking of Schedule I and II drugs. Even fentanyl (Schedule II) legally prescribed must abide by federal (FDA) rules. If so, why would medical cannabis be any different (if in Schedule III)?,” Zuanic asked.
This hinges on the notion that federal rules for controlled substances would not apply to state-level medical cannabis programs.
Federal Implications Remain For State Programs Yet, the report acknowledges that this might not legalize state cannabis programs at a federal level, as such programs don't fully align with the sale and production of Schedule III drugs.
“The bullish narrative assumes the scheduling review won't differentiate between medical and recreational use, focusing on the substance's classification over consumer intent. As seen with oxycodone and fentanyl, Schedule II drugs cover varied use. While a cannabis reschedule to Schedule III won't federally legalize state programs, it could mitigate 280E impacts,” Zuanic noted.
While the potential benefits for the cannabis industry are considerable, the complexities of aligning federal and state regulations still loom large.
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