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Rescheduling Cannabis & The U.S. Securities Market


In early January 2024, the U.S. Department of Health & Human Services (HHS) officially recommended rescheduling cannabis from a Schedule I drug to a Schedule III drug. While this would not lower the amount of drug-related convictions among the general populace, it would open up the possibility of greater research and commerce related to cannabis being legal – a major boon to those interested in doing business in the industry. Cannabis-related securities are historically difficult to buy and sell, but this might change as rescheduling goes forward.

No Opportunity For Growth

As matters currently stand, participation in the cannabis industry is difficult both because of federal law superseding the numerous state laws that allow trade in cannabis-related items. In addition, the Internal Revenue Service (IRS) Code Sec. 280E prohibits any kind of deductions or credits from illegal businesses, specifically from the sale of illegal drugs in Schedules I and II. As of this writing, Florida only permits products with minimal amounts of THC to be sold, and only then to registered medical cannabis patients – but even they encounter difficulty and delay in obtaining their prescribed amounts.

Because of the restrictive laws, capital is at a premium. Several companies have turned to the securities market to raise some – and while the Securities & Exchange Commission (SEC) does not specifically prohibit cannabis-related securities, they do aggressively police these investments for fear of misinformation. They do also warn investors of potential criminal consequences if they choose to invest. A rescheduling would fundamentally alter the nature of cannabis-related securities.

More Opportunities & Research

A substance that is classified in Schedule III has a “moderate to low” potential for physical dependence, and at least one recognized medical use. This would appear to fit cannabis as a substance, given its long-accepted uses to treat chronic pain and glaucoma – but regardless, a Schedule III classification would mean much greater opportunity for both medical research and investment. IRS Code 280E would no longer apply to cannabis, meaning that more businesses would have access to capital without undue tax burdens, and access to banking would be easier to obtain.

What this means for the average investor and consumer is that there will be more opportunities simply because more cannabis-related businesses will be able to stay in business. It is still incumbent on each business to know the potential pitfalls of investment, but the risks will be much lower. While the ultimate decision as to the rescheduling lies with the Drug Enforcement Administration (DEA), the signs are there that the cannabis industry is headed for brighter times.

Contact A Seminole, FL Securities Attorney

The securities market is ever-changing, and SEC rules must adapt with the times. If you have questions about investing in these securities – or any others – a Florida securities attorney from the Hunt Law Group is ready to try and assist you. Contact our office today to schedule a consultation.

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