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While the White House’s proposal to reclassify marijuana as a less dangerous drug is undoubtedly a huge breakthrough for the cannabis industry, the road to implementation remains “long and dark,” BTIG analysts said.
In a recent report, BTIG acknowledged that reports that the Biden administration is preparing to propose such action mark a “watershed moment” for the cannabis industry. Yet even if the White House is determined to move forward quickly, the process could be bogged down by legal challenges for years.
There is no doubt that by reclassifying marijuana from a Schedule I substance (a category usually reserved for high-abuse drugs like heroin) to a lower-risk Schedule III substance (which includes prescription drugs like Tylenol and codeine).
First, the reclassification would allow cannabis companies to take the standard tax breaks currently prohibited for businesses that derive revenue from Schedule I drugs. It would also create more research opportunities for the industry (which BTIG considers a “long-term tailwind”) and allow banks to offer a wider range of services to cannabis businesses. BTIG added that “embracing progressive reforms” would also “reduce the political costs of future actions”.
But BTIG also warned that the process could face delays due to legal challenges and a lack of clarity on implementation.
The investment firm is particularly concerned that outsiders could ask an administrative law judge to review the proposal, which could delay the reclassification by up to a year. BTIG has also seen legal challenges follow the reclassification, which could delay the process for another two years.
“Finally, given existing state programs, the size or scope of regulations required to be implemented is unclear,” BTIG said, adding that a second Trump administration may also slow down the process.
BTIG also expressed a “bearish” stance on the cannabis banking bill, noting that there has yet to be any real progress on the bill and that Senate Minority Leader Mitch McConnell remains opposed to it.
Multi-state operators: Cresco Labs (OTCQX:CRLBF), Trulieve (OTCQX:TCNNF), Green Thumb Industries (OTCQX:GTBIF), Curaleaf Holdings (OTCPK:CURLF), MedMen Enterprises, Acreage Holdings (OTCQX:ACRHF), Ayr Wellness (OTCQX:AYRWF); Ascend (OTCQX:AAWH), Verano Holdings (OTCQX:VRNOF), Jushi Holdings (OTCQX:JUSHF).
Marijuana Services: Leafly (LFLY), GrowGeneration (GRWG).
Canadian Cannabis Companies: Tilray (NASDAQ: TLRY), crown growth (NASDAQ:CGC), Aurora Cannabis (ACB), Cronos (CRON), Organigram (OGI) Village Farms (VFF), Curaleaf (OTCPK:CURLF), High Tide (HITI), TerrAscend (OTCQX:TSNDF), SNDL (SNNDF).
Cannabis ETFs: AdvisorShares Pure Cannabis ETF (YOLO), Amplify Seymour Cannabis ETF (CNBS), ETFMG Alternative Harvest ETF (MJ), AdvisorShares Pure US Cannabis ETF (MSOS), AXS Cannabis ETF (THCX).
