Three Pathways To Federal Cannabis Legalization That Investors Are Watching Closely

The debate over U.S. cannabis legalization is complex, spanning economics, law and social justice. As of April 2024, recreational cannabis is legal in 24 states, and half of all Americans live in a state where recreational cannabis consumption is permitted. Despite this, cannabis remains illegal under federal law, a status investors believe may soon change. But the path to change is still forming.

Unpacking the Complex Journey Towards National Legalization

How this change will occur is yet to be discovered. In a recent interview, industry expert and manager at Poseidon Investment Fund Emily Paxhia, laid out three main pathways along which cannabis legalization might happen. 

Let’s break them down.

Federal Rescheduling Route

The initiative to reclassify cannabis under federal law is spearheaded by a push to designate it as a Schedule III substance, signaling recognized medical benefits and lower abuse potential. 

This effort is under review by the DEA, following a recommendation from the HHS. The political will for this change is robust, bolstered by favorable public opinion across both ailes. 

However, the DEA’s process is meticulous, somewhat unpredictable and also lacks a definitive timeline for their final announcements.

The Legislative Route

Optimism is high for legislative progress in 2024, particularly following the advancement of the SAFER Banking Act through the Senate Banking Committee. This legislation aims to bridge the gap between federal and state laws by facilitating banking and financial services for cannabis businesses. By reducing financial risks and increasing transparency, the SAFER seeks to foster industry growth and stability.

The cons are that it stops short of altering cannabis’ federal legal status and the road to approval implies a long and sinuous legislative effort.

The Judicial Route

This pathway opened up as a group of cannabis companies in Massachusetts decided to defy the interpretation of the Controlled Substances Act in court. 

Success in this case could not only lead to more equitable tax treatment for cannabis businesses but might also prompt a retrospective financial adjustment, benefiting companies that have previously faced harsh fiscal conditions.

What To Expect In The Near Future

As the multi-billion dollar cannabis industry continues to expand and consolidate, pressure mounts for federal legalization. If cannabis receives the federal green light, restrictions on lending and banking for the industry are relaxed, or the Massachusetts lawsuit favors the plaintiffs then the industry is poised to access more capital. This will boost consolidation while enhancing production efficiency, and scale operations significantly. 

As these three paths unfold, the future of cannabis legalization remains a central issue, with implications that reach far beyond the confines of the industry.