In case you haven't noticed, marijuana has become a mainstream issue. Long considered a topic that politicians would sweep under the rug due to its taboo nature, cannabis has stepped into the spotlight following Canada's legalization of recreational pot and the fact that 33 U.S. states have legalized medical marijuana (10 of which also allow adult-use consumption).
This push into the mainstream has also been fueled by the American public's budding support for weed. In October, national pollster Gallup found that an all-time record 66% of respondents favored the idea of broad-based legalization. Needless to say, cannabis is expected to be one of a handful of hot-button topics in the 2020 elections.
Joe Biden's past fuels a media-based cannabis scare
A good number of Democrats who've announced their candidacy for the presidency have seized this opportunity by proclaiming their support for federal change. As a reminder, marijuana is a Schedule I substance, meaning it's entirely illegal, highly prone to abuse, and has no recognized medical benefits. At least six prominent Democrats -- Bernie Sanders, I-Vt., Elizabeth Warren, D-Mass., Kamala Harris, D-Calif., Amy Klobuchar, D-Minn., Cory Booker, D-N.J., and Kirsten Gillibrand, D-N.Y. -- have voiced support for legalization at the federal level.
But not every Democrat has been on board with the legalization movement, at least according to various media outlets. Democratic front-runner Joe Biden was roasted by the media after announcing his candidacy for the presidency given his harsh stance on illicit substances in the past.
Between 1986 and 1990, Biden introduced a number of policy proposals designed to crack down on criminals involved in illicit drugs. Many of these bills called for considerably harsher sentences for drug dealers, including those that were involved in growing and distributing marijuana in the United States. Even as recently as 2010, the former vice president was quoted as saying:
I still believe it's a gateway drug. I've spent a lot of my life as chairman of the Judiciary Committee dealing with this. I think it would be a mistake to legalize.
To say that Biden's multidecade War on Drugs and his immediate leap to the head of the Democratic field (although it's still very early in the election season) had pot stocks and cannabis enthusiasts on edge would be an understatement.
Biden makes an (unsurprising) about-face on pot
But three weeks ago, Yours Truly cautioned that brandishing Biden as anticannabis without hearing from the man himself may not be accurately representing his current position. In recent years, Biden's stance on criminal punishments for marijuana offenses has softened, and in January 2019, the former vice president said, "I haven't always been right. I know we haven't always gotten things right, but I've always tried."
The fact is that people and views can change, and we've seen it happen in Washington before. Former Republican Speaker of the House John Boehner once described himself as "unalterably opposed" to decriminalizing marijuana in the late 2000s. But in a tweet in April 2018, Boehner proclaimed that his views on cannabis had "evolved" and that it was time for the federal government to change its stance on marijuana. Boehner has even gone on to join Acreage Holdings' (NASDAQOTH:ACRGF) board as an advisor. Acreage is one of the largest multistate cannabis businesses in the United States, with its vertically integrated business model spanning 20 states, inclusive of pending acquisitions. Recently, Acreage Holdings agreed to be acquired by Canopy Growth for $3.4 billion under the condition that the federal government legalizes marijuana.
Perhaps it's not such a surprise, then, that Biden announced an about-face on cannabis after decades of stringent proposals. While speaking to voters in New Hampshire on May 14, Biden said, "Nobody should be in jail for smoking marijuana."
CNN probed further by questioning Biden campaign spokesperson Andrew Bates about Biden's official stance on marijuana (i.e., whether he supports legalization). Said Bates to CNN:
As he said [Tuesday], Vice President Biden does not believe anyone should be in jail simply for smoking or possessing marijuana. He supports decriminalizing marijuana and automatically expunging prior criminal records for marijuana possession, so those affected don't have to figure out how to petition for it or pay for a lawyer.
Biden's fix for cannabis could become a big problem
On one hand, Biden's shift on pot could potentially alleviate a lot of concerns that businesses and investors had about the growth of cannabis in the United States were he to become the 46th president.
On the other hand, the former vice president's solution to the cannabis conundrum in the U.S. is worrisome, as it might create more problems than it solves. When questioned by CNN, Bates went on to add:
He [Biden] would allow states to continue to make their own choices regarding legalization and would seek to make it easier to conduct research on marijuana's positive and negative health impacts by rescheduling it as a schedule 2 drug.
While this probably seems like a harmless, if not positive, statement by the Biden campaign, rescheduling marijuana to Schedule II from Schedule I -- which would acknowledge that the drug has recognized medical benefits -- could be a nightmare.
For starters, moving the drug from Schedule I to Schedule II wouldn't alleviate the issues U.S. pot businesses have to contend with regarding Section 280E of the tax code. Section 280E disallows businesses that sell a controlled substance (either Schedule I or II) from taking normal corporate income tax deductions, save for cost of goods sold, which is often a small percentage of revenue. This usually leads to profitable marijuana companies paying exorbitant effective tax rates to Uncle Sam. Without the ability to take deductions available to so-called normal businesses, weed companies could struggle to hire new workers and expand.
However, the bigger issue at hand is that a Schedule II classification opens a new can of worms for the U.S. cannabis industry. Being recognized as having medical benefits would put the medical marijuana industry under the strict supervision of the U.S. Food and Drug Administration (FDA). The FDA could tightly control the marketing and labeling of medical marijuana packaging (which is already being done in our neighbor to the north by Health Canada), and it may very well oversee the manufacture of cannabis crops, ensuring cannabinoid consistency.
An even more worrisome problem is that the FDA could require medical marijuana companies to run very costly clinical trials to establish claims that cannabis helps certain ailments. Right now, the only proven cannabis indication is that GW Pharmaceuticals' (NASDAQ:GWPH) cannabidiol-based oral solution known as Epidiolex can treat two forms of childhood-onset epilepsy. In clinical studies, GW Pharmaceuticals' lead drug wound up leading to a between 30% and 40% reduction in seizure frequency from baseline, leading to the FDA approving the drug in June 2018. There isn't a single additional indication proven to be treated by cannabis or its cannabinoids, according to the FDA. If the agency were to take a strict stance on cannabis, similar to what it's now doing with the vape industry, the U.S. medical weed industry would suddenly be in very big trouble.
Biden's reversal on cannabis could potentially be a long-term positive for the pot industry, but if the former VP chooses to reclassify cannabis as Schedule II, things could get dicey.