One Step Forward On The Road To Federal Cannabis Reform

• The announcement last week by the department of Health and Human Services (HHS) that it is now recommending the rescheduling of cannabis from schedule I to III, marks a significant inflection point for federal cannabis reform. The timing of the Drug Enforcement Agency (DEA) approval is unknown but could be centered around next year’s presidential race. 
• Even though cannabis remains illegal at the federal level, it has been a de facto industry for years, with a myriad of forces that have affected its profitability. Since 2014 when the legalization of recreational use cannabis was introduced in Colorado, billions of dollars have been deployed into the sector.  Additionally, the economic benefits that have been realized over the years is significant and public support in favor of cannabis reform remains strong. For these reasons alone, we think the federal prohibition on cannabis will eventually end.
• Nonetheless, there remains several unanswered questions as to how the industry will ultimately be regulated given the widespread acceptance of recreational use cannabis and its existence, alongside a new path for medicinal applications. The investment risk associated with this uncertainty has not been thoroughly alleviated by this news, and due to the inherent complexity of this subject matter, some statutory ambiguity may continue for some time before a final consensus becomes prevalent.  It is possible that a “new set of rules” will apply opening the doors for Big Alcohol and Tobacco in addition to Big Pharma.
• With the eventual participation of Big Pharma, we continue our belief that medical marijuana (as it exists today) will be recalibrated and redefined as the pipeline of new, more targeted medicaments become available with precise dosage and efficacy guidelines. 
• We believe there will eventually be a tipping point as the medical profession gains more comfort in “pushing” a targeted marijuana treatment (Schedule III) rather than a patient having to “pull” a recommendation. At this juncture, we think it likely that existing medical and recreational use markets will combine with regulatory oversight under one regime, quite possibly in similar fashions as alcohol. 
• Until such time as Schedule III cannabis medicines become commercially available, we expect state regulated markets to continue status quo. We expect the industry as a whole to move.forward at a steady and deliberate pace guided by a continued patchwork of federal reform measures.

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