As the formal review process for rescheduling cannabis unfolds, industry players are closely watching its potential to transform the sector. With the DEA hearing delayed until early 2025 and a possible Trump presidency adding uncertainty, cannabis businesses are preparing for what rescheduling to Schedule III could mean.
From FDA oversight to interstate commerce and pharmaceutical-grade standards, these changes could fundamentally reshape the landscape—and investors and businesses need to be ready.
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Rescheduling: A Door To Big-Box Pharmacies?
Denise Pollicella, a cannabis attorney and head of Omnus Law‘s cannabis practice, points out that rescheduling cannabis isn't just about new retail partnerships but about overhauling how cannabis businesses operate.
"It's about transforming how cannabis businesses operate—adapting to FDA oversight, meeting pharmaceutical-grade standards, and navigating stricter compliance requirements," she told Benzinga Cannabis in an exclusive interview.
Rescheduling to Schedule III could allow major pharmaceutical retailers like CVS CVS and Walgreens WBA to carry cannabis. But is the pathway straightforward?
Pollicella anticipates a system similar to the 2018 hemp legalization framework, where states submit regulatory schemes to meet federal guidelines. "Most states prefer to regulate these things themselves, particularly from a financial and tax point of view," she said, noting states' interest in retaining control of fees and fines.
FDA Oversight: Stricter Standards Ahead
If cannabis becomes a pharmaceutical-grade product, compliance with FDA standards will significantly change how businesses operate. Pollicella explained that the cannabis industry has historically focused on ensuring safety and avoiding contaminants, with minimal emphasis on seed traceability. "Most of the testing and analysis has revolved around making sure that it's safe and doesn't have contaminants, and then around THC and CBD levels," she noted.
Pollicella added that transitioning to pharmaceutical-grade products would require stricter production standards and significantly more testing, which could drive up costs in an already expensive industry. Pollicella noted the likely challenges: "When it goes to a more pharmaceutical-grade product, not only will the production standards have to become more strict, but you'll also have significantly more testing."
Interstate Commerce
Rescheduling cannabis from Schedule I to Schedule III could pave the way for interstate trade, a shift that would fundamentally reshape supply chains and market dynamics. By lowering cannabis’s federal regulatory classification, rescheduling would enable cannabis to be treated more like other pharmaceutical products, potentially allowing producers in one state to sell to buyers in another. However, this transition would introduce new regulatory complexities.
Pollicella thinks that cannabis crossing state lines will require permissions, excise taxes, and strict identification as medical marijuana, and noted that states with mature medical markets, such as Michigan, Pennsylvania, and Florida, could dominate the wholesale market.
MSOs operating in these states include TerrAscend TRSSF, Cresco Labs Inc. CRLBF in Michigan; Green Thumb Industries Inc. GTBIF, Curaleaf CURLF, and Verano Holdings Corp. VRNOF in Pennsylvania; and Trulieve Cannabis Corp. TCNNF and Ayr Wellness Inc. AYRWF in Florida.
These companies have heavily invested in CapEx for pharmaceutical-grade cannabis to meet stringent standards aligned with FDA requirements, positioning them to supply pharmacies and other large-scale buyers. "Michigan has tried to position itself as being nearly equal to FDA standards," Pollicella explained, highlighting the state's competitive advantage.
M&A Activity: A Rescheduled Catalyst?
The prospect of federal rescheduling is already sparking discussions about mergers and acquisitions. Pollicella foresees significant consolidation as businesses struggle to meet pharmaceutical-grade compliance. "Companies that have grown thoughtfully and in a measured way are going to knock it out of the park," she said, emphasizing the Darwinian nature of the cannabis business.
Midwest markets, like Michigan and Illinois, are expected to play pivotal roles in M&A activity. Pollicella highlighted Michigan's readiness, citing its strict testing standards and proactive lobbying efforts. “Michigan has tried to position itself as being nearly equal to FDA standards,” she explained, adding that the state could become a major producer for the Midwest.
Will A Trump Presidency Delay Progress?
Pollicella warns that rescheduling is far from guaranteed. "Anybody counting on the rescheduling of marijuana down to Schedule III in the new administration is making an assumption that's not necessarily based on anything we've seen yet," she cautioned.
While some industry advocates hope the promise of tax revenue and economic growth will sway federal policymakers, Pollicella remains skeptical. "It's not a priority for this administration," she said, adding that substantial lobbying will likely be needed to make progress.
2025
Despite the challenges, Pollicella is optimistic about the industry's potential under a rescheduled framework. She believes businesses with scalable production capabilities and strategic foresight will thrive. However, she also underscores the need for readiness.
Despite the significant political and economic discussions surrounding cannabis rescheduling, the process itself is more straightforward than many assume. Pollicella explains that the Controlled Substances Act of 1970 placed cannabis on Schedule I through political and legislative decisions, rather than medical consensus. "None of the criteria for Schedule I—no known medical use, no known safe use, and a high probability of addictiveness—really apply to marijuana," she said. As with its initial classification, rescheduling will require bipartisan consensus and can follow one of two paths.
Congress could pass legislation to amend the Controlled Substances Act, or the Attorney General could direct the FDA and DEA to conduct a review and implement rescheduling through administrative rule-making.
Read Also: DEA Sets Stage For Marijuana Rescheduling With December 2 Hearing
Political Will
"Once there's political will, it can happen like this," Pollicella said, snapping her fingers metaphorically to illustrate how quickly the process could move once initiated.
This swift rescheduling would require states to align their regulatory schemes with federal guidelines. Pollicella anticipates that it might follow a model similar to the 2018 hemp rollout:
"The FDA could give states with existing regulatory structures a timeline, say six to nine months, to refine their programs to meet federal standards. States that comply could maintain control, while those that don't might see federal intervention."
However, the question remains whether the upcoming administration will prioritize this process. "The real challenge isn't the steps—it's the political will to move forward," she noted.
Read Next: Federal Policy Could Add $3 Billion To Cannabis Industry: On Track To Reach $55 Billion By 2030
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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