Consequences of a cannabis debt restructuring – Cannabis | weed | marijuana

What are the consequences of reclassifying cannabis in the United States?

Last week, the federal Department of Health and Human Services (HHS) sent a memo to the Drug Enforcement Administration (DEA) recommending a change in cannabis scheduling.

The herb is currently a Schedule 1 drug, meaning it has a high potential for abuse and no medicinal value. It shares this category with heroin.

The recommendation to convert cannabis to Schedule 3 does not constitute legalization, but it does make cannabis research easier. It also means tax breaks for state-owned cannabis companies.

Of course, the DEA could ignore HHS. Cannabis remains a Schedule 1 drug for the time being. But what consequences would a switch to cannabis have?

To get answers, CLN interviewed three industry experts. Larry Scheffler, co-CEO of Planet 13, Nicolas Guarino, co-founder of Naturae, and Jason Wilson, cannabis research and banking expert at ETF Managers Group (ETFMG).

What do you think might be the consequences of switching to cannabis?

Consequences of rescheduling cannabis

Suppose the U.S. federal government shifts cannabis prices. What then?

“It will be a life-changing event for any cannabis company,” says Larry Scheffler. Its beef, like most U.S.-based cannabis operators, is subject to tax number 280E.

Typically, a business takes its gross income and subtracts operating expenses to determine its net income. Companies pay taxes on this.

However, a state-level cannabis business cannot take the same deductions. You have to pay taxes on gross income. In most cases this means 20-25%.

“That’s really what most companies in the United States have in terms of profit margins,” Larry says. “And we pay that as a penalty to the government because of course it’s still Schedule 1.”

Larry is confident Cannabis will get a new appointment. “Let’s operate like any other company in the United States. I don’t care what you think about cannabis,” he says.

But there is too much uncertainty at the moment, even given the consequences of a possible reorientation of cannabis. Since Schedule 3 drugs are based on research and medicine, there is a fear that pharmaceutical companies will displace operators at the state level.

“Is Big Pharma going to take over the entire cannabis industry?” Larry asks. “Nobody knows, I’m not very afraid of it. My partner, who is a lawyer, sees it differently.”

What about banks and international contracts?

Jason Wilson is also careful not to read too much into the news. “It’s not suddenly happening, it’s legal everywhere and we don’t need to push forward with legal reforms.”

However, there are some positive aspects. “The biggest downside by far is that businesses can now deduct their business expenses.” But Jason adds: “I think that’s probably the only absolute.”

Everything else is currently speculation. Jason hopes that re-planning at the federal level will be accompanied by some national guidance. Something that will “somehow help move things along” and get banking regulations passed, if not outright legalization.

Jason is also hopeful from an investor perspective. One consequence of cannabis debt restructuring could be that banks take a toned down approach. “This would help improve capital valuations for the cannabis companies.”

“The other positive thing that can come from this,” says Jason, “is greater opposition to state laws that prohibit interstate commerce.” He suspects that a new regulation of cannabis could lead to challenges to the Commerce Clause at the state level.

What about international contracts? The United States is a signatory to the UN Single Convention on Narcotic Drugs, which requires cannabis to be banned.

“This has always been a problem worldwide,” says Jason. And it could prevent reform of the U.S. government without an act from Congress.

But as Jason points out,

“Canada is a member of the same convention and they have chosen to ignore it. Like other countries, for example Germany. And there were no real consequences for countries that deviated from this commitment.”

What about interstate commerce?

While the consequences of switching to cannabis may be primarily positive, it’s not all sunshine and roses. Nick Guarino, co-founder of Naturae, agrees that eliminating 280E pollution is a step in the right direction.

But “I think by and large everything else will be neutral,” he told CLN. “Even though there is a lot of talk about the fact that there will be a lot of negative developments.”

While some may welcome interstate commerce, Nick sees it as a greater challenge. “For any operator currently operating in a single market and still building their business,” competition from larger companies from more mature cannabis markets will not bode well.

Instead, Nick sees greater regional trade within medical programs as Annex 3 has medical and research implications.

“So you could potentially have medical programs in California trading with medical programs in Oregon and Washington or something like that. But I think it will be primarily on the medical program.”

But as a New York operator, Nick fears the kind of market consolidation that could occur if large cannabis companies from California, Oregon or Washington move into the region.

“New York is so late,” he says. If you have not been able to establish and scale your business to the same level as other operators in more mature markets, “it can be very threatening that the borders are opening.”

Consequences of rescheduling cannabis

Of course, the consequences of switching to cannabis will become clear when (or if) cannabis is redefined.

“From their lips to God’s ears, we hope it gets through,” Larry Scheffler said. “But with politicians there are no guarantees. Always.”

Particularly in the US, where many companies have lost 90% of their value due to federal inaction and botched plans to pass banking reform, cautious optimism is the best one can hope for.