THE ramifications of last week’s announcement that the US President plans to pardon thousands of citizens federally convicted of the ‘simple possession’ of cannabis are yet to be fully understood. Though use of his clemency powers to expunge these criminal records has been welcomed widely throughout the cannabis industry, many have been quick to point out that in practice a very small proportion of convicts stand to benefit from these plans. Others have suggested that this could mark the ‘beginning of a wave of legalisation across the globe’, and that it will ‘definitely spark a shift in perspective of the capital markets’. As the real-world impact of this announcement plays out, what remains clear is the disproportionate impact domestic US cannabis policy has on the global industry. Movement in the Markets Although the move has been welcomed as a step in the right direction from President Joe Biden, who has until now made little progress on his promises of federal cannabis reform, its immediate practical impact will be limited. His pardon will see no one released from federal prison, and will quash the convictions of around 6,500 people. For perspective, around 400,000 people are currently in prison for drug offences, 67,000 of which are in federal prison. This is because almost no minor cannabis convictions are prosecuted at the federal level. Instances where this is more likely to happen are when the offences occurred on federal property, for example national parks, or in properties that receive federal funding such as public housing or some college dormitories where federal law supersedes state law. However, it is the President’s clear message of intent and promise to ‘review how marijuana is scheduled under federal law’ that has driven dramatic rallies in cannabis stocks, and could yet have a ‘tremendous international impact’. On Thursday, October 6, North American cannabis stocks surged at close, seeing the US-listed shares of Tilray, Canopy Growth and Sundial Growers, among others, increase by double-digit increments. By the end of the week New Cannabis Ventures’ American Cannabis Operator Index had risen by 35.6%, helping stock prices recover from a torrid September, the index’s worst month in more than three years. Canadian operators experienced a similar spike in stock prices, though the subsequent rebalancing of prices was much more severe, seeing indices drop far more significantly on Friday, with some companies, including Aurora, actually declining. The story was similar in Europe on Friday, October 7, seeing a number of companies, including Kanabo, Synbiotic, Cellular Goods, Chill Brands and IM Cannabis, enjoy more muted spikes, and some dropping back to previous levels the same day. US Regulatory Developments & the Global Cannabis Industry The ongoing reaction from Europe’s media, politics and financial markets serves as the latest example of the close relationship between US regulatory developments and the fortunes of cannabis companies across the globe, regardless of their exposure to the US market. As SEED Innovations’ Vice President of Investment Analysis, Alfredo Pascual, told BusinessCann: "Stocks of cannabis companies are highly correlated and often move together even if these firms operate in different jurisdictions. “Over the past couple of years, news and sentiment coming from North America – particularly related to the potential or lack of federal reform in the US – have been moving cannabis equity prices in Europe and elsewhere." Clever Leaves, an international cannabis company with positions in both the US and Europe, saw its stocks shoot up 36% following the announcement. Its co-founder and CEO Andrés Fajardo explained that he believes US developments have such a ‘disproportionate’ impact on the rest of the sector for a number of reasons, including the sheer size of the market. “The US is not only the largest market in the world for cannabis, it’s the largest market in the world for many different industries. I think from an industrial organisation perspective, change in the US has a disproportionate effect on any given industry.” A Transnational Agreement on Cannabis However, he argues that its influence stretches far beyond this given the US’s ongoing strength on the international political playing field. He added that its global impact is felt ‘even more so within the global cannabis space than any other country, given the level of development, strength and the influence the US has, including within the UN convention’. Mr Pascual mirrored this sentiment, suggesting that the announcement will be ‘quite significant’ in terms of providing ‘tailwinds for policy makers’ in other countries, such as Germany and Colombia, that have committed to cannabis reform. More crucially, however, is how the announcement could ‘impact the international discussion around the 1961 Single Convention obligations’. “The ‘process of reviewing how marijuana is scheduled under federal law’ that Biden announced can't be done in complete isolation,” he explained. “The US is party to the 1961 Single Convention and some of its drug scheduling provisions were enacted with the purpose of ensuring US compliance with its international drug control obligations, in particular the 1961 Single Convention.” In order to satisfy these international obligations, Mr Pascual continued, authorities in the US believe cannabis must be placed under the Controlled Substances Act (CSA) Schedule I or Schedule II. If, as some stakeholders expect, cannabis was moved from a Schedule I to Schedule III or another category with lower levels of control, this would ‘have a tremendous international impact’. “If such a rescheduling really occurs, it will be particularly interesting to see how the US justifies that decision internationally. “With so many moving pieces it's hard to predict many steps ahead, but a possibility is that this could even mean tailwinds for a transnational agreement of like-minded, cannabis-friendly countries in terms of how they approach their international cannabis control obligations.”
