From a deeply philosophical place, I do think cannabis should be legal and treated the way alcohol and tobacco are. From a reality place, we don’t have the luxury of being able to be philosophical people. This is a make-or-break moment for the industry.
– Sahar Ayinehsazian
Prospecting and soliciting opinions in the cannabis space is the ultimate mental flex you can indulge in. And for once, the news we received about rescheduling was surprisingly unawful. And trust me when I say that, three weeks after Bloomberg broke the initial story, I still think our collective future isn’t spoken for because this space and the people in it don’t necessarily share the same motive or the same voice. I wish it did, but it doesn’t, so qualifying a distinctive and specific future as either “good or bad” for all of us has limitations. And lest we forget, over the last 50 years, the Department of Health and Human Services (HHS) and Department of Justice have conducted five scheduling reviews of cannabis. This is the first time we’ve broken through. In this moment, curiosity might be more beneficial than conspiracy.
Industry Experts Weigh In: Make-or-Break Moment
So what’s your prerogative: access to medicine, corporate cannabis growth, the inception stage start-up, distributor, home-grower, marketer, banker, etc., etc? I hunted every cannabis luminary I could read from or speak to, and my colleague Sahar Ayinehsazian, partner at Vicente LLP and chair of their banking group, packaged it very nicely: “We all, in theory, want something better. From a deeply philosophical place, I do think cannabis should be legal and treated the way alcohol and tobacco are. From a reality place, we don’t have the luxury of being able to be philosophical people. This is a make-or-break moment for the industry.”
Despite what has dogged us fiscally and politically up to this point, the space does still tend to go from left to right and sort of up in fit-and-starts. This recent announcement from the HHS to the Drug Enforcement Administration (DEA), taking cannabis from a Schedule I classification to a Schedule III classification, produced an instantaneous buzz both jubilant and cynical, a quiet and uncertain happy scream that felt inappropriate in time and place, like in a library or a funeral. The vigilance fatigue most operators have is very real; you can’t eat hope; skepticism toward the government is reflexive; and for a long time, it hasn’t felt like anyone was coming to the rescue. So it makes sense to treat any semblance of good news as suspect. This, however, is a serious and unequivocal change.
Exploring the Reclassification Process
I also think we’re looking at and representing the reclassification process all wrong. It’s predominately been, and shouldn’t only be, “This is what we as an industry will turn into under the yolk of Schedule III.” I believe it would prove more beneficial to try, “Hey American public, the Fed’s just said, on record and soon on paper, that we’re considered separate from and seemingly not nearly as ‘problematic’ as some other drugs you’ve heard of, namely cocaine, Vicodin, Adderall, Percocet, etc.” Instead of bemoaning or overanalyzing our new lot in life, despite the apparent benefits and potential faults, we should be throwing confetti at every passerby and constituent about what this means for us and them.
I mean, a little levity for a moment—just look at the company we’ll keep! Schedule III is chock-full of familiar namesakes, some not nearly as taboo (ketamine), some previously popular and wildly abused (anabolic steroids…check 90’s to early 2000’s baseball—heck, all sports!).
In all seriousness, the gravity and motion of this recommendation make for a serious change—a shift from one business and social paradigm to another. And it’s my opinion that anything that helps broker a larger and wider-ranging open dialogue and acceptance, however gradual, in America will push states to the starting line sooner. And with it, the people in them.
The Uncertainty of DEA Regulations: Theories Abound
As a reminder, unlike Schedule I narcotics, the DEA has very stringent regulations concerning the manufacturing, distribution, storage, and prescription of Schedule II through V drugs. So does this change augment or annihilate current methods and businesses across those disciplines in the adult and medical markets? The question that yields varying arrays of opinions and angst revolves around one specific situation with no straight answer: will the continuation or change to the federal government’s current policy of non-enforcement suddenly change and imperil current companies and participants with onerous DEA regulations now that Schedule III is likely? Again, there are varied theories about something so mammoth.
Scanning the archives of wonks and luminaries, I’ll take the tack and lead from Vince Sliwoski, Managing Partner of Harris Bricken and Editor of the Canna Law Blog and the Psychedelics Law Blog, specifically his seven year old, zero-confusion title, “Federal Reclassification of Cannabis Will Not Kill the Industry.”
“Even in the strange world of federal marijuana policy, it would be counterintuitive for the federal government to designate cannabis as less dangerous via Schedule II [for purposes of this writing, just add another roman numeral], only to shutter the few dozen [now double that] state programs that were tolerated by the federal government when marijuana was in Schedule I.”
State-Legal Cannabis and Federal Classification: A Complex Relationship
The authority for state-legal cannabis operations has nothing to do with the classification of marijuana on the controlled substance list. Zero! In fact, the federal Controlled Substances Act (CSA) outlaws the manufacture, distribution, and sale of cannabis classified anywhere under the Act. With rescheduling, state-legal cannabis businesses would still operate in violation of federal law, as is happening today.
But as for my desperate search for anything remotely resembling a straight answer, I’m still perplexed. Just for the sake of time, I’ll pose the questions here the same way I asked them, with brief and curt answers, if I was able to digest them. Beware; some of the answers are like reading results from a Rorschach inkblot test. So please, if you’re reading this, contact me so I can get your two cents. I’m in search of ideas, I invite speculation, and I welcome the debate so we can all be informed, even if we disagree.
Credit cards, interstate commerce, equity, and more unresolved matters
Q: How long will it actually take for the DEA to submit their response to rescheduling?
A: I’m not sure; it’s hard to say. It could take some time. People need to have comments. The rulemaking process could be a long conversation. However, in an election year, maybe the chips get pushed in.
Q: Is federal law enforcement going to come down or pick us up?
A: The risk of federal enforcement will be more unlikely, though new enforcement elements will come into focus. Punt.
Q: With credit cards, are we good?
A: Well, no, but potentially yes. When? No idea. (Back to the starting line.)
Q: Interstate commerce, go!
A: What could occur potentially would be regional enclaves, not domestic wide interstate commerce. Still, ultimately, no, so the current fragmented supply chain stays in place, still can’t accomplish true economies of scale, but reshoring continues!
Q: Will equity in these businesses, big and small, be more viable/valuable?
A: It depends, but yes. Some public companies will benefit from improved investor sentiment, and early entrants will have businesses with relatively unhampered cash flows. Cash-intensive industries like cannabis hopefully pull from judicious investors, speculative investors for sure, investment can only go up since we’re basically scratching the bottom.
Q: Organized labor, UAW big and active headline, UFCW/Teamsters already in cannabis—will this change amplify the presence?
A: Businesses in manufacturing heavy industries tend to be flashpoints for organized labor. With profitability a likelier scenario, yes, they will have even more of a platform to stand on.
Q: 280-E, nixed?
A: Yes. Game-changer, don’t quibble too much. State’s, new and old, could impose stronger levies on the markets. Still, a better financial world.
Q: Are investor’s interests renewed?
A: For some, absolutely. In the new-new there will be a greater chance of a ‘there there,’ and companies absent from 280-E won’t have to create convoluted organizations to circumnavigate the space, seemingly making it easier for investors to understand. Also, considering that past publications quoted only 25% of cannabis companies as being profitable, we’ll see a precipitous uptick in potential profitability and, with it, speculation.
More rescheduling questions to consider
Does this create a feverish environment for expansion and consolidation?
Does this change how insurance is created and provided?
Does this do anything to intellectual property rights?
Could import/export with Canada, the EU, etc. exist?
Does the illicit marketplace get even more zapped or emboldened following rescheduling?
Drug discovery and R&D in America: will we start seeing a more concerted effort to create new products/therapies?
What does this do to criminal justice reform and social equity?
What does this do to state and congressional reforms?
Maybe this new paradigm so far doesn’t read any worse than the situation we’re in, and how could it? This is a jokey statement, but maybe rescheduling is our cultural and regulatory equivalent of “sitting bitch.” It’s not what we wanted, but at least we don’t have to get back in the trunk.
Are you up for an intellectual debate, need help, or have a question? Email me at firstname.lastname@example.org. Happy to geek out further.
Mike Siebold is a strategic advisor and investor to several cannabis teams domestically. His exposure to the hiring demand and movement of people within the cannabis industry gives him a unique perspective on the prospects and viability of players across the entire ecosystem.