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Rescheduling Marijuana in the U.S. Could Backfire

By Sean Williams – May 27, 2018 at 7:23AM

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Despite cannabis being entirely illegal now, a move to Schedule II at the federal level could actually make things worse.

The legal weed industry appears to be budding across North America. Last year, according to cannabis research firm ArcView, in partnership with BDS Analytics, legal weed sales in North America soared by 33% to $9.7 billion. In a decade, forecasts call for more than $47 billion in legal pot sales. This rapid growth, along with growing support for cannabis among the public, is a big reason why investors simply can't get enough of pot stocks.

Throughout North America, expansion has been picking up steam for more than two decades. Our neighbor to the north, Canada, legalized medicinal cannabis back in 2001, and looks set to become the first developed country in the world to legalize adult-use marijuana next month. Meanwhile, to our south, Mexico gave the green light to medical marijuana in June 2017. Within the U.S., 29 states have legalized weed in some capacity since 1996.

A cannabis plant growing in an outdoor farm.

Image source: Getty Images.

The call to reschedule cannabis in the U.S. is picking up steam

But unlike Canada and Mexico, marijuana remains wholly illegal at the federal level in the United States. Classified as a Schedule I drug by the U.S. Drug Enforcement Agency, cannabis remains illegal, is considered highly prone to abuse, and has no recognized medical benefits. In fact, its classification places it alongside such drugs as LSD and heroin.

Yet, the call to reschedule or deschedule marijuana completely has been growing. Within the U.S., favorability toward the idea of legalizing pot has grown from just 25% in 1995, the year before California became the first to OK medical weed for compassionate-use patients, to 64% as of October 2017, per Gallup. Legalizing marijuana appears to be what a majority of survey-takers want, and it would, at the same time, open up a new tax revenue stream for the federal government, as well as create a number of jobs directly and indirectly associated with the pot industry.

Evidence is also growing that cannabis, or cannabinoid-derived drugs, could provide genuine medical benefits. U.K.-based cannabinoid drug developer GW Pharmaceuticals (GWPH) has presented evidence that its lead drug, Epidiolex, is useful in reducing seizure frequency in two rare types of childhood-onset epilepsy, known as Dravet syndrome and Lennox-Gastaut syndrome. In multiple phase 3 trials, GW Pharmaceuticals' lead drug has easily met statistical significance in reducing seizure frequency relative to baseline, and when compared to a placebo. A month from now, GW Pharmaceuticals' top drug could be the first cannabinoid-derived medicine ever to be approved by the Food and Drug Administration (FDA).

A judge's gavel next to trimmed cannabis buds.

Image source: Getty Images.

Rescheduling marijuana could backfire, big-time

Last month, Senate Minority Leader Chuck Schumer (D-NY) announced his intention to introduce a bill that would completely decriminalize marijuana at the federal level, thereby removing it from the controlled substances list. Of course, going from the harshest classification imaginable to the other end of the spectrum in one fell swoop seems unlikely. 

Instead, a number of lawmakers on Capitol Hill have proposed rescheduling cannabis. In doing so, marijuana would become legal for medicinal purposes, albeit it would still be a regulated substance. Of all the possible scenarios, going from Schedule I to Schedule II – i.e., a drug with recognized medical benefits that's still prone to abuse -- is the outcome with the highest chance of success. Unfortunately, rescheduling cannabis could wind up backfiring on the folks who are most fighting for its legalization: medical patients.

Should marijuana be moved to Schedule II, it would likely be heralded as a major victory of medical cannabis patients, and for the marijuana movement as a whole. But in doing so, it would allow the FDA to wield full control over the industry.

A researcher in a lab coat making notes while in the middle of a hemp farm.

Image source: Getty Images.

FDA regulation could be the weed industry's worst nightmare

What would FDA regulation look like? To begin with, the FDA would have the final say on packaging and marketing of cannabis products. Given that Schedule II drugs are entirely for medical patients, this wouldn't be a big deal. We're talking about tamper-resistant and childproof packaging, but nothing excessive or out of the ordinary.

Secondly, the FDA would likely oversee the growing, processing, and distribution of medical cannabis. In particular, it would be responsible for monitoring the consistency of tetrahydrocannabinol (THC) content -- the component of cannabis that gets you "high" -- from one crop to the next. It may also monitor the consistency of cannabidiol (CBD), the non-psychoactive component of cannabis, which also happens to be the primary cannabinoid in GW Pharmaceuticals' Epidiolex.

The terrifying grey area is that the FDA could also require medical cannabis companies to run FDA-approved clinical studies that definitively show that medical marijuana helps specific ailments. This would be an exceptionally costly and time-consuming process, and it could remove medical marijuana from a lot of indications that patients may currently be benefiting from, at least until clinical trials are over and the FDA gives its OK.

As the icing on the cake, businesses that sell Schedule II drugs are still subject to Section 280E of the U.S. tax code, which is the more than three-decade-old tax rule that disallows businesses from taking normal corporate income-tax deductions if they sell a Schedule I or II substance.

A book on federal and state marijuana laws next to a judge's gavel.

Image source: Getty Images.

Change is probably a long ways off

In some ways, Schedule II could actually be worse than Schedule I. Perhaps that's why two Florida congressman, Rep. Matt Gaetz (R-FL), and Rep. Darren Soto (D-FL), are introducing a bill at the federal level to move cannabis to Schedule III. In doing so, states would have more regulatory control, and the FDA wouldn't be such an overbearing presence on the industry. 

But no matter how many new bills are introduced at the federal level, change appears to be a long ways off. Attorney General Jeff Sessions, who is an ardent opponent of the expansion of the legal cannabis industry, will seemingly stop at nothing to quash any and all decriminalization or rescheduling efforts. Meanwhile, President Trump, despite favoring the idea of states' rights when it comes to regulating state-level marijuana, has an agenda that simply has no room for cannabis reform.

In other words, medical patients, enthusiasts, and investors should count on marijuana firmly remaining a Schedule I drug for some time to come.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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