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DEA Signs Off on Schedule III

On April 30, 2024, the DEA agreed with the HHS recommendation to reclassify cannabis from Schedule I to Schedule III. The news drove cannabis stocks higher, with the US cannabis MSOS ETF gaining 24.83% on record-high volume of 50.55 million shares. With more than $12 million in inflows and share price appreciation, the ETF gained more than $280 million in AUM and reached a new all-time high in assets. Moving to Schedule III eliminates the 280E tax burden that prevents US plant-touching operators from deducting ordinary expenses such as rent and salaries. Viridian estimates that the top 10 US cannabis companies would save more than $700 million annually from eliminating 280E. Schedule III will also allow for more medical research and should increase the investor base. The top five US cannabis companies are less than 20% institutionally owned, whereas large alcohol and tobacco stocks commonly approach 75% institutional ownership. See the chart on the right for details. While Schedule III does not explicitly allow listing on higher exchanges, it is a significant step toward getting US plant-touching operators on the NASDAQ and NYSE. Boris Jordan, Executive Chairman of Curaleaf (TSX: CURA, OTCQX: CURLF), joined us on Higher Exchanges and shared a major US exchange contacted the company on Tuesday to begin discussions. A Garland Memo and SAFER Banking may also increase the probabilities of reaching higher exchanges. While the DEA sign off is a crucial step, Schedule III is not yet official. Jordan stated he expects the decision to be at the Office of Management and Budget (OMB) for one to two weeks and then the DEA will make the official announcement. Next, there will be a 60-day comment period, and he expects the final ruling to be complete by the time early presidential voting begins in September. Along the way, Jordan cautioned us to expect injunctions and challenges. If Schedule III is finalized this year, 280E relief will be retroactive for 2024 and companies can file for refunds for the prior three years. Jordan stated that removing 280E would save Curaleaf approximately $150 million in 2023 and roughly $175 million in 2024. Hirsh Jain, Founder of Ananda Strategy, also joined Higher Exchanges to share his perspective on the news. Jain drew important correlations between cannabis’ political path and the legalization of gay marriage. He also explained how the Schedule III decision may drive further state-level changes, especially in red states, and shared what he sees as the biggest political risks moving forward. Those interested can listen to the full episode of Higher Exchanges on Apple Podcasts, Spotify, or X Spaces. Links are accessible in our full report.