While the possibility of rescheduling is exciting and the biggest news for Cannabis since the Cole Memo, there are numerous factors that warrant careful consideration.
Undoubtedly, the potential benefits of rescheduling cannabis are substantial. From expanded market opportunities to lower taxes, there's a lot to look forward to. However, we must also acknowledge the potential challenges and nuances that come with this shift.
The positives are huge. Most obvious, the change in 280E and the treatment of taxation, mainly how cost of goods and deductions are treated. This alone would be a game changer for the industry dramatically reducing the tax burden and creating more cash flow and margin for the industry. The opportunity and potential for interstate commerce, while not guaranteed, would open markets enabling companies to create a larger customer base and economies of scale across many facets of their businesses.
However, the following all warrant consideration:
DEA and FDA Engagement:
Given Schedule III drugs are regulated by the FDA, stricter standards may be imposed, requiring companies to invest in changes related to testing, quality control, and compliance measures. Further, Schedule III drugs require prescriptions and the disconnect between the current state run programs vs. DEA/FDA involvement would need to address the disparity in State vs. Federal oversight. This may alter how goods are transported, distributed and sold all of which would force evolution in operations.
Market Dynamics:
With a change in Scheduling, the competitive landscape could undergo a shift. Larger companies that already operate in multiple states may have an advantage and be able to consolidate some operations while smaller companies might have to determine how to compete on a multi-state playing field. New players may enter the market, and consumer preferences could evolve. Staying ahead in this dynamic environment requires a keen understanding of both current and emerging trends.
Election Dependent:
The rescheduling is not something all politicians support and is unlikely to be a difference maker for President Biden in his reelection bid. Depending on the timing of execution or lack of speed, it may lose momentum if not passed and rolled out prior to the 2024 election.
Research and Innovation:
Rescheduling might pave the way for more comprehensive research into the medical applications of cannabis. This presents both opportunities and challenges. All companies must be ready to adapt their product offerings based on new scientific insights.
Given the gravity of this potential shift, this is an opportune moment to assess your current strategies, anticipate challenges, and devise innovative approaches to leverage the changing landscape and making sure you have the capital you need to meet them.
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