All eyes again are focused on Washington for help, but this time from bureaucrats, not legislators. President Joe Biden has directed regulators to reschedule marijuana as a less-dangerous controlled substance, which many in the industry expect to happen in the next several months.
If marijuana is reduced from a Schedule 1 to a Schedule 3 drug, it would lower taxes for cannabis companies, which currently can’t deduct the same day-to-day expenses as traditional businesses. The impact would be far greater than the banking reform legislation that the industry has been pursuing for several years. The future of the SAFER Banking law, which looked promising a few months ago, seems doubtful, given the political turmoil in the U.S. House, tempering some of the enthusiasm for industry fortunes.
Stock prices got a lift in September when the Department of Health & Human Services recommended rescheduling, but they have retreated a bit since then. Verano Holdings’ stock price is up 38% so far this year; Green Thumb Industries’ shares are up 21%; and Cresco Labs’ stock is down 6%. All three stocks are still down by at least half from where they were trading two years ago.
Illinois joined several other states in offering some relief, allowing cannabis companies to deduct business expenses from state taxes — a move that could save them millions a year.
The roller-coaster ride for publicly traded companies flows through to private companies. As stocks slid, valuations of private firms slumped, too. Deals such as Dispensary 33’s planned sale of two Chicago pot shops to Miami-based Ayr Wellness fell through. Just five Illinois dispensary licenses were transferred in the fiscal year ended June 30, down from 17 and 15 licenses sold in each of the previous two years, respectively, according to state records.
“Rescheduling has the biggest immediate impact,” Paxhia says. “We would start to see exits again. Without it, a lot of small companies won’t make it.”
Meanwhile, in Springfield, the cannabis industry is pushing for regulations to restrict the sale of competing hemp-based products, such as Delta 8. Fourteen states, including Colorado and New York, have banned Delta 8.
“We have to move forward to regulating intoxicating hemp, which is a direct competitor to our social-equity licensees,” Johnson says. “I do think the Legislature has the appetite to regulate intoxicating hemp.”
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