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Cannabis Rescheduling ‘Likely’ to Take Place Before Presidential Election, Say Analysts

Cannabis rescheduling is ‘likely’ to take place before the upcoming presidential election, according to new analysis from the Bank of America.

Last week President Joe Biden has officially confirmed that cannabis is set to be rescheduled from a Schedule I substance to a Schedule III.

This ‘tectonic shift’ in policy has been widely expected since April 30 when reports from the Associated Press suggested that sources within the Drug Enforcement Administration (DEA) confirmed they would support the move, with later confirmation coming from the Justice Department.

While the White House has refused to engage with questions on the topic ever since, statements from Biden, Vice President Kamala Harris, and White House Press Secretary Karine Jean-Pierre have now confirmed beyond any doubt that the process of reclassification will be moving forward.

Despite confirmation of the move coming from the country’s highest office, numerous sources pointed to the remaining potential hurdles still to be overcome before rescheduling could be implemented.

Chief among these were concerns regarding the timeline with doubts raised that the process, which usually takes months or even years, could be completed ahead of the election in November.

Furthermore, given that the decision was not made by the Drug Enforcement Administration (DEA), and the process did not follow the usual framework adopted by the administration, the potential of judicial challenges to the decision were raised.

However, analysts from the Bank of America have suggested that the 35-page supporting memo from the Office of Legal Counsel (OLC) could ‘prove very important’ in overcoming these hurdles.

According to Proactive Investors, the analysts believe the ‘biggest potential hurdle to cannabis being rescheduled… is possible legal challenges’.

The OLC memo, which lays out a series of potential rebuttals to the most likely legal challenges the move may face, alongside the FDA/HHS review that outlines the case from a scientific perspective, ‘should make it very difficult for this to be overturned in the courts’.

“Further, we believe the fact these memos are already in place, with supported reasoning, it should make the timeline to final rule much quicker, such that we could likely see this finalized before the November election.”

Elsewhere, the analysts stated that aside from the tax benefits for cannabis companies set to come with rescheduling, the real upside will be the potential of ‘uplistings’ onto major stock exchanges and subsequent institutional investment.

“In addition to rescheduling providing a major cashflow boost to US operators, as it will mean they pay a normal effective corporation tax rate versus the 80%-plus they pay today, the real watch, with regard to valuations at least, is if it leads to uplistings and/or greater institutional ownership.”

Despite this, they cautioned that it is not yet clear whether the move to Schedule III will alone be enough for major exchanges and institutional investors to finally support the cannabis industry.

“We think prospects are much improved if we see Schedule III and other incremental reform such as SAFE Banking, and potentially a new Cole Memo.

“Even if still not enough for an exchange like NASDAQ, we think it will almost certainly be for an exchange like the TSX, which is already allowing listing of US cannabis names with certain business restructuring.”

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