The U.S. Reclassifies Cannabis
Questions remain as the process lurches forward.
Note: this article has been updated throughout the day.
Acting AG Todd Blanche posted this on X first thing this morning…
Our initial read was that that the first bullet protects states that have legal frameworks and the second bullet relates to states with no existing programs but that was a first-glance interpretation as we chewed through the details in real-time.
Questions remain, however, and markets want particulars and clarity, which we’ll likely get as this process evolves. Either way, rescheduling just began to lurch forward.
We will continue the conversation on X-subs as digest the text, where we found this from the Dept. of Justice (page 23)…
the more we chew through the particulars, the more we view this is a step-function rescheduling w immediate relief for MMJ (and the potential vacancy of past 280E obligations) along with an additional hearing re: adult use to avoid potential legal jeopardy; this is giant positive but not the immediate gratification some desired.
UPDATE 10:40 from ATB:
The DOJ has moved to partially reschedule cannabis to Schedule III. Only FDA-approved cannabis and state-licensed medical cannabis were rescheduled. Meanwhile, it set hearings with expedited deadlines to fully reschedule cannabis.
Notably, the AG is also encouraging the Secretary of the Treasury to consider providing retroactive relief from 280E liabilities for state-licensed medical cannabis.
This two-part solution was a somewhat unexpected move, which we believe is what’s driving the “sell the news” reaction today; we saw the same when Trump issued the EO in December. However, we think it’s a net positive and fundamentally stocks should be up on this.
By splitting rescheduling, the DOJ avoids hearings that could have delayed the entire process until 2027.
Rescheduling state-licensed medical cannabis gets a significant part done, and having hearings for the non-medical portion reduces litigation risks in the future. Moreover, the hearings are scheduled to start June 29 and conclude no later than July 15(here), indicating a rapid resolution.
It’s clear the DOJ is providing a legal solution to get as much done as soon as possible. Considering how fast the acting AG is moving, we think the remaining rescheduling portion may get done in Q3/26.
The portion encouraging the Secretary of the Treasury to consider retroactive relief is also very positive. If confirmed, it would significantly reduce the UTP balances that MSOs have. Moreover, it could encourage potential full UTP relief once the other rescheduling portion is accomplished.
A material portion of MSO sales are in state-licensed medical markets, like Florida and Pennsylvania, which would not be subject to 280E. We don’t have an exact breakdown by company (they generally don’t disclose medical vs AU), but Trulieve stands out given that most of their sales are in Florida.
Most importantly, if the remaining portion of rescheduling gets accomplished by the end of 2026, this difference may not matter as 280E would likely not be applicable for the entire year (not forgetting also the potential for retroactive relief, as mentioned).
This is an intricate process with legal nuance and a first-of-its-kind, so we’re still getting more details and will keep you informed.
UPDATE: Beacon 11AM:
UPDATE: AGP 12PM ET
Update at 12:30 PM ET
Having a lot of conversations with industry peeps who are closest to the situation and they are quite happy with this approach and believe June will be a procedural ✅ for adult-use and the judicial risk has been drastically reduced.
ATB UPDATE (12:30 PM ET)
Since the DOJ only rescheduled medical cannabis (with full rescheduling still awaiting hearings), we’ve been getting questions about each MSO’s medical cannabis sales exposure.
Companies do not generally disclose this, so we don’t know exactly. As an imperfect proxy, we calculated the MSO’s relative retail exposure to medical markets.
This is based on the number of stores each company has and considers each market’s estimated medical sales as a % of total sales.
Again, note that this data represents each company’s relative retail exposure by number of stores, not sales.
12:45PM ET
Curaleaf CEO Boris Jordan joined ATB at 1PM ET
Best news sector has ever received.
Amazing the market response.
Could also be because there’s a misunderstanding of what just happened.
Rescheduling being done in 2 steps. Done so this cant get reversed in court.
First step is to use united nations single convection of narcotic drugs.
^ same treaty that the UK, Germany, AUS, CDN, etc. rescheduled under.
^ focuses only on medical, all it can focus on.
Medical rescheduled as of today.
Clause in document that makes this retroactive.
Expect treasury to come out w/ clarification shortly, how far will be retroactive.
Could be 3 years, could be back as far as the business started.
3 years would mean hundreds of millions of retroactive taxes claimed.
Every co w/ a medical license, CURLF has med licenses in every state, will submit for DEA license, as long as have standing w/ state, DEA will grant you a medical license.
Become a federally legal business at that point in time.
Up-listing looks to be happen post-that, as have a federal license to operate medical cannabis businesses. 👀
Over 60% of CURLF business is still medical today.
Could be higher, but running numbers.
Number grows the further you go back.
Believe many states move their programs to medical now, despite A/U.
Call it medical so everyone gets equal treatment under the treaty.
Boris doesn’t think that is necessary.
2nd step is return to Biden rule and ALJ process.
28th/29th of June hearing.
New ALJ judge in charge of that.
Will reschedule cannabis from AU perspective, doesn’t mention medical.
Would expect some time in Q3 to get that rule.
That rule has also now been published.
All of that means that by Q3 med + A/U should be rescheduled to S3. 👀
Most back taxes are medical bc businesses only recently flipped to AU in most states.
CURLF 100% of FL, PA, CT NY is medical, UT is medical, etc.
Other states still have a significant degree of medical sales.
Although medical starts today, believe second rule and hearing at end of June, government will address A/U.
Have been in contact w/ regulators, that is their intention. 👀
Sales will not have to go through government.
Just a way for government to collect a fee, when reschedule under UN convention, need to monitor grams sold.
Will collect fee on medical sales to pay bills for regulatory bodies.
Not a substantial amount.
Think by end of Q3 we will have S3 for all med + A/U canna products. 👀
Have heard if it doesn’t happen by Q3, many states will make programs medical.
CURLF and other operators already operate under medical + A/U licenses.
^ technically qualify across the board bc all AU businesses were originally medical .
No 280e in international business (over $200m business).
Medical now no longer under S1, and dated back to Jan 1 ’26.
Need to make decision if CURLF puts tax benefit in Q1 or other quarters.
Need info from Treasury under how far back this goes.
^ normal IRS rules are 3 years, but if all of medical, could go back to 2014.
Until ’23 over 80% of CURLF business was medical.
Hear IRS + treasury could release info as early as today, could day or two. 👀
If get medical and A/U, well over 70-80% of UTP will disappear.
If just medical, probably closer to 60-65% of all UTP will go away.
If A/U rescheduling passes, would also be retroactive to Jan 1 ’26.
CURLF also owns a large international fully medical business.
Bulk of business, close to 80% of business, would be medical (post-INTL fold-in).
Would be in a very good shape from banking perspective.
May need to have separate accounts for medical + A/U until A/U passes.
Believe when they come out with info (today / shortly) Treasury will push for banking for all businesses. 👀
No matter the position of ALJ, which is expected to be positive, an indication of DOJ that they have their marching orders respective of the ALJ.
Will recommend and move forward w/ rescheduling rule.
ALJ hearing is not technically required for rescheduling.
ALJ recommended in 1983 for rescheduling and Reagan admin still said no.
Here, know the President does want to reschedule.
Confident that whatever outcome of ALJ, believe we still get a rule.
Know this AG can sign off on the rule, no issues from that.
This is a request from the White House.
Think it got accelerated now is because President wants it to get done faster.
Think Q3, well before mid-terms, this gets done.
Medical will be able to get credit card access pretty quickly.
Once get DEA licenses, federally legal medically.
Question on whether MMJ will be allowed to be interstate, getting clarity on that.
Higher likelihood it will be allowed from a medical perspective.
Allows many new angles in how to structure the business going forward.
Businesses are seeing a lack of capacity.
Between hemp being cancelled and price compression, now starting to see for the first time, illegal products are more expensive than legal products.
Anticipate a resurgence of growth in organic markets going forward.
Seeing a pretty good line up in 2H in terms of growth of regulated cannabis.
Admin intention to reschedule cannabis.
Think these states move quicker to make their programs medical, if for some reason government didn’t make a decision to reschedule A/U programs.
Many of the social equity licenses given out in these states are A/U, not medical.
CA had a larger medical program than their current A/U program today.
Think you see a lot more states go medical now.
Think states like PA, when get rescheduling, will move to A/U.
More than highly confident than by Q3 we will get the A/U portion rescheduled.
This is just the process taken to do it to minimize risk in court. 👀
A lot could happen between now and Q3.
Think a lot of states move before than and reclassify their programs as medical.
In some cases very easy, could be done through regulatory process; in some states would have to be a regulatory process.
Think many states do it as a hedge against A/U rescheduling not happening.
Very clear want to state that believe A/U gets reclassified by Q3.
Last thing admin wants is social equity licensees in A/U be treated differently because they aren’t medically licensed.
Think at the least, states give all operators dual med + A/U licenses.
Some states require medical card, some states is an online process.
20-25% lift if credit cards become allowed.
CURLF P1 trials for neuropathic pain just finished. Moving to P2.
Moving those trials to US almost immediately.
Will also be involved in Trump low-dose THC, high-dose CBD medicine for 65+
CURLF very medically focused.
Have partnership w/ UPenn in PA. Sit on board of NYU in NY.
In EU, 100% medical.
Working w/ College of London.
In Spain, campus is on Alicante University campus.
Believe CURLF has a massive head start in US on getting registered for pain drugs.
Particularly neuropathic pain.
A replacement for opiates.
Believe will be able to sell CURLF products into pharmacies.
Don’t believe there will be a change back to previous hemp laws.
No appetite in the country.
May see some special classification for low-dose medical for 65 years and older.
Howard Kessler and team working on this.
Don’t believe there is any appetite for hemp products.
Even the law submitted this morning was rescinded.
Don’t think we see a vote on hemp in Congress this year.
See a lot more activity within the US M&A markets.
Tuck in basis.
Don’t think rescheduling changes that.
^ wasn’t a 280e problem, but a scalability problem with smaller operators.
Think you see major mergers between other major cannabis businesses as well.
Think you need size.
It’s a velocity business.
No reason to carry double costs in each states.
Have closely looked at what CURLF would look like merger w/ contemporaries in the industry.
Over $200m in savings and almost a doubling of revenue. Most states you can do that.
Think most states want to see a finish of this rescheduling process.
Think by end of year, once rules published, may start to see CPG look at M&A.
Plenty of strategic interest from operators in EU.
Don’t think it is the time for it.
CURLF received valuations north of $900m for EU business.
Interest seen for CURLF from CPG and medical companies.
Need to see Trump, DOJ, guidance, rescheduling process to finish.
EU has left the US behind, not looking at the US at all.
Following the UN convention, moving those programs forward.
Spain, France, Turkey enter medical market in EU in ’27.
EU now almost 2x the TAM of the US.
Think we broke the glass ceiling today.
First major initiative around cannabis since Rohrbacher-Barr 14 years ago.
Think this is a major step in the right direction.
Highly confident we see further rule from DOJ/ALJ process in Q3.
Think more treasury guidance on taxes/ uplisting on the back of this. 👀
Think we are on our way to a successful ’26 and ’27.
Think regulations change at state and federal level now that this has happened.
Cant do any buyback until earnings.
Happy that CURLF can make good decisions once earnings drop.
Very bullish right now.
Pablo Zuanic at 2:30PM ET
3:45 PM from The White House
“there will be additional actions that come this summer... an expedited hearing for… all of marijuana to move into schedule III.”
Chart Check: MSOS (4PM ET)
MSOS 0.00%↑ coughed up the recent run-up as ETF back-tested the cluster of moving averages, starting with the 200day at $4.22—where it closed to the penny.
Back-tests that hold are typically the best entry points in an efficient market but this is anything but. Still, as the significance of today’s move permeates and the intention of this administration takes root, there will be better days ahead for U.S. cannabis.
More on this morning’s news here.
Have a safe journey, please enjoy responsibly.
If you’d like to help Mission [Green] change federal cannabis policies, please click here.
CB1 has positions in/ advises some of the companies mentioned and nothing contained herein should be considered advice.
A tip of the hat.