The Highlights
Global equities had a strong week, with the MSCI World Index +2.62% and the S&P 500 +2.55%. The NASDAQ jumped 3.25%, while small caps led the rally this week, finishing up 3.69%. The advance was driven by signs of a softening labor market that may make the Fed pause further interest rate hikes. Cannabis stocks surged on surprising news that cannabis may be moving to Schedule III, which would eliminate the 280E tax burden. The US cannabis ETF MSOS ended the week +38.98%, while the global cannabis YOLO ETF finished +30.43%. HHS Recommends Moving Cannabis to Schedule III On Wednesday afternoon, Bloomberg reported that the US Department of Health and Human Services (HHS) recommended moving cannabis to Schedule III. This took place in a letter sent on August 29 from the HHS to Drug Enforcement Administration (DEA) Chief Anne Milgram. Schedule III eliminates the 280E tax code that prevents cannabis businesses from taking ordinary deductions. The next step is that the DEA will do its own evaluation and make a recommendation to Attorney General Merrick Garland. The DEA has never gone against the HHS recommendation. The Attorney General is supposed to issue an interim final ruling within 90 days. The interim final ruling is effective immediately upon publication. Following the interim final ruling, there is an indefinite period to collect commentary and hold hearings. Once concluded, the Attorney General will issue a final effective ruling. However, rescheduling occurs at the time of the interim final ruling, which may take place by year-end and 280E could be removed as soon as 2024. Kim Rivers, CEO of Trulieve (CSE: TRUL, OTCQX: TCNNF), discussed this starting at 15:10 of this Twitter Spaces. It is possible the DEA does not concur with the Schedule III recommendation and suggests Schedule II or staying with Schedule I. The DEA did a review in 2016 and determined cannabis should stay Schedule I. There is also an international treaty called the Single Convention on Narcotic Drugs of 1961 that requires cannabis to remain Schedule I or II. Foley Hoag conducted a review of this topic, which is available here. This Cannabis Musings Substack is also helpful in understanding the treaty and rescheduling process.
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