Pharma wins in Schedule III – De-scheduling is the only way for true Equity!

The Biden Administration has been loudly touting diversity, equity and inclusion as top priorities since taking office, particularly when it comes to cannabis policy reform. However, their recent proposal to reschedule cannabis from a Schedule I to a Schedule III controlled substance reveals that promoting true equity is far from their primary concern.

For decades, Joe Biden has been cozy with Big Pharma, accepting millions in campaign contributions from drug companies over his long political career. It’s no secret that the pharmaceutical industry vehemently opposes cannabis legalization, as legal weed represents a major threat to their profits from opiate painkillers and other drugs. Pharma much prefers that cannabis remain illegal, or barring that, placed into a restrictive category like Schedule III that they can control and corner the market on.

Rescheduling cannabis to Schedule III would allow the drug to be legally prescribed, but with strict controls and oversight from the FDA. This plays right into the hands of major drug companies, who have the resources to navigate the complicated federal approval process and bring cannabis-derived pharmaceuticals to market. Smaller entrepreneurs, especially minorities who have been disproportionately impacted by the War on Drugs, would be largely shut out from participating in the industry.

If the Biden administration truly cared about diversity, equity and inclusion in cannabis, they would push to completely deschedule the plant, rather than shifting it to Schedule III. Descheduling would open up opportunities for a much wider range of individuals and small businesses to enter the legal industry. It would begin to repair the harms of the drug war and create more equitable access.

But Biden has never been a real ally to cannabis reform or racial justice. His proposed rescheduling is a pharma market grab disguised as incremental progress. Allowing a corporate oligopoly to further enrich itself will do nothing to help the marginalized communities who have suffered the most under prohibition. Only full descheduling can pave the way for true equity in the cannabis space. The administration’s “diversity and inclusion” rhetoric around this issue rings completely hollow.

Rescheduling cannabis to Schedule III would place it under the strict purview of the FDA, subjecting the industry to onerous regulations and compliance burdens that disadvantage minority small business owners. The costs of operating a Schedule III business are prohibitively high for most entrepreneurs. Companies must navigate an arduous FDA approval process for each cannabis-derived product, which can take years and cost millions of dollars in research and legal fees.

According to a 2017 survey, only 4% of cannabis businesses are owned by African Americans, and less than 2% by Latinos. These numbers are unlikely to improve under a Schedule III system that favors deep-pocketed corporations. Existing minority-owned cannabis businesses, already facing capital access challenges, would struggle immensely to shoulder the regulatory costs of FDA compliance, likely driving many out of business entirely.

Businesses would have to implement robust quality control systems, conduct expensive clinical trials, and maintain meticulous production records to meet FDA standards. The agency’s Good Manufacturing Practices are notoriously difficult to comply with, requiring significant investments in specialized facilities and equipment. Companies would also face extensive labeling and marketing restrictions, with the FDA tightly controlling allowable claims and product information.

While Schedule III substances can be legally prescribed and sold, they are still considered illegal outside of FDA-approved channels. Cannabis would remain a federally illegal substance, with businesses still facing the threat of raids and asset forfeiture. This “Regulatory Prohibition” would likely be weaponized against minority operators, as the drug war has been for decades. Those without the means to fight regulators could find themselves criminalized under the new system.

The pharmaceutical industry, through lobbying and campaign contributions, would inevitably seek to shape the FDA’s cannabis regulations in their favor. This could lead to policies like dosage limits and bans on whole-plant products that benefit patented drugs while hindering small producers. Pharma’s influence would further tilt the playing field against minority owners.

For minority entrepreneurs, the costs of entry and compliance under Schedule III would be backbreaking. Without serious equity initiatives to provide resources and technical assistance, a Schedule III industry would be dominated by Big Pharma and exclude people of color, doing little to repair the injustices of the drug war.

As we debate the future of cannabis policy in America, we must first ask ourselves: why are we even considering legalization in the first place? The answer is clear – it is the will of the people. For over a decade, a steadily growing majority of U.S. citizens have believed that cannabis should be legal. A recent poll found that a staggering 91% of Americans support legalizing medical marijuana, and 7 out of 10 are in favor of recreational legalization as well. The public has spoken, and they have resoundingly rejected the failed policies of prohibition.

So why, then, are we wasting time debating incremental “rescheduling” measures like moving cannabis to Schedule III? The only rational discussion to be having at this point is how to deschedule marijuana entirely and implement full legalization nationwide. Anything less is a slap in the face to the supermajority of Americans who want the freedom to consume cannabis without fear of arrest or stigma.

Activists like RAW Josh on X (formerly Twitter) are absolutely right to be outraged at the suggestion of Schedule III as some kind of victory.

It is not a win for the cannabis community, who have fought for decades to end prohibition entirely. It is not a win for those who have had their lives ruined by the cruel excesses of the Drug War, disproportionately people of color. It is not a win for medical patients, who would still face significant federal restrictions on their medicine. And it is certainly not a win for entrepreneurs and small businesses, who would be steamrolled by the pharmaceutical industry under a Schedule III paradigm.

What Schedule III represents is the iron grip of corporate pharma influence on our political system. It is a calculated maneuver to co-opt the legalization movement and steer the industry into the waiting hands of a few powerful drug companies. Roughly half of the funding of the FDA comes from Pharmaceutical companies through a scheme called “User Fees”.  Since Pharma loses roughly $10 billion annually in a region where Medical Cannabis is legal…what do you think happens to these “fees” that the FDA receive.

By maintaining strict federal control over cannabis, the government can pick and choose winners in the market, and rest assured those winners will not be mom-and-pop pot shops or minority-owned startups. They will be the multinational corporations with the lobbying power to write the regulations in their favor.

We cannot allow this to happen. We cannot allow the will of the people to be subverted by special interests yet again. The cannabis community must stand firm and demand nothing less than full descheduling and an end to federal prohibition once and for all. We must reject half-measures like Schedule III that are designed to fail us while enriching a corrupt pharmaceutical industry.

If that means we have to completely overhaul the DEA, or dismantle the incentive structures that allow corporations to buy off politicians, so be it. The war on drugs has been one of the most destructive and wasteful policy failures in American history, and it will not end until we take bold, uncompromising action. The people are ready for change, and we will continue to fight for it, against all odds and all opposition, until our work is finished. Descheduling is the path to justice, to equity, to individual liberty. We cannot settle for anything less.

When it comes to cannabis policy, the sticky bottom line is this: Schedule III is not what activists and advocates have been fighting for all these years. It is a far cry from the full legalization and normalization we seek. As citizens, it is imperative that we make our voices heard on this issue, not just in who we elect as president, but perhaps more importantly, in who we choose to represent us in Congress.

The unfortunate reality is that many of our current elected officials are political dinosaurs, beholden to special interests like Big Pharma who line their campaign coffers with cash. They are out of touch with the will of the people and more concerned with serving their corporate masters than doing what’s right. It is time we vote these compromised individuals out of office and replace them with representatives who will stand up to the pharmaceutical lobby and fight for true cannabis freedom.

What we demand is nothing less than complete descheduling of this miraculous plant. Because that’s what cannabis is at the end of the day – a plant. It is a seed that we can sow into the earth, a gift from nature that grows abundantly without human intervention. For centuries, humans have cultivated cannabis for food, fiber, medicine and spiritual purposes. Who are we to criminalize a plant that has served us so well?

The right to grow our own sustenance and healing herbs is fundamental to our autonomy as free people. Without that right, can we truly call ourselves free? Or are we merely slaves, dependent on the permission of corporations and governments to access the necessities of life? That is the question each of us must ask ourselves as we contemplate the future of cannabis in America.

In the end, the sticky bottom line is a matter of principle. Will we stand up for what we believe in, even in the face of powerful opposition? Will we fight for our sovereignty and self-determination, no matter how long it takes? Or will we compromise our values for the sake of political expediency and allow ourselves to be subjugated by those who seek to control us? The choice is ours to make, and the consequences will be ours to bear. Let us choose wisely, and let us never give up until the battle is won.

MORE ON SCHEDULE 3, READ ON…

THE WINNERS AND LOSERS FROM SCHEDULE 3 CANNABIS!

Minnesota cannabis producers have raised concerns over the availability of products when the legal market finally opens. In response, the Minnesota legislature has acted quickly to allow an avenue for early cultivation providing key guidance for the forthcoming Minnesota legal cannabis market. Noting these concerns, industry participants have asked the Minnesota Office of Cannabis Management (OCM) and their local legislators to consider opening cultivation and production of cannabis products early, in order to supply retailers with legal products to sell once licenses are awarded and retailers open for business.

The OCM’s problematic decision not to endorse or seek immediate changes for Minnesota cannabis production

The OCM issued a statement recently indicating it will not ask for changes to the current laws that would allow some cannabis cultivators to start growing plants early as a way to have products available and ready for retail when stores open sometime in early spring of 2025. The OCM notes that they remain receptive to proposals that could pave the way for early production, but are not seeking immediate action at this time. This recent decision highlights the issues and complexities of introducing a new legal cannabis market into an already existing marketplace. The main issue surrounds how legal retailers could open for business if they do not have any legal cannabis products to sell.

The OCM suggests additional delays could occur

One option would be to rely on existing medical cannabis rules for early cultivation. However, concerns that issuing producer licenses contemporaneously with retail licenses would cause unnecessary delays, are met with concerns over unnecessary delays from the OCM. The OCM notes that reliance on the existing medical cannabis rules presents inherent flaws, particularly in accommodating outdoor farms and ensuring equitable opportunities for social equity applicants. Allowing for early cultivation under the existing medical cannabis requirements only exacerbates challenges faced by social equity applicants and would place legal producers outside of the existing medical regulatory framework at a disadvantage.

Despite concerns legislators took action and have provided a proposal for early cultivation

Senator Lindsey Port spearheaded amendments, which culminated in floor debate lasting over six hours. In response to the challenges facing producer and retail licenses, as well as accommodating outdoor farms, ensuring equal access for social equity applicants, or allowing early cultivation under the existing medical cannabis regulatory framework, legislators are took up the issue and provided additional proposals. The amendments were aimed at facilitating early cultivation, an essential step towards nurturing a robust and inclusive cannabis market. These amendments seek to grant permission for early production to social equity producers, addressing the imperative of equitable participation in the anticipated Minnesota legal cannabis industry. By integrating the existing medical cannabis regulations with newly proposed social equity pre-approved licenses, Senator Port’s amendments offer a pragmatic framework for expediting cultivation timelines while safeguarding the interests of diverse stakeholders.

Early cultivation is key to a strong launch

The significance of early cultivation cannot be overstated in the context of Minnesota’s nascent legal cannabis market. Not only will Minnesota’s legal cannabis market be forced to compete with the existing illegal market, the same as every other state, but the new legal market will also be competing with the existing THC beverage and lower-potency hemp edible markets. Early cultivation holds the key to undermining the influence of illicit markets and channeling demand towards legal and regulated avenues, but only if the legal cannabis market can get a strong launch. Moreover, early cultivation will serve as a lifeline for small businesses and social equity applicants, affording them a crucial head start and robust launch in an industry characterized by fierce competition and evolving regulatory dynamics.

Licensing and lottery system concerns for Minnesota cannabis producers

Understanding the nuances of licensing is integral to navigating Minnesota’s cannabis marketplace. Although licenses will not be issued until early 2025 at the earliest, and the full regulatory framework has not been finalized, producers and cultivators will have access to three distinct production license categories – bulk cultivators, mezzo licenses, and micro licenses. Each category carries with it separate requirements and allowances regarding canopy space, facility size, quality control requirements, staffing protocols, and more. Notably, lower-potency hemp cultivation and sale remain exempt from canopy caps, presenting another wrinkle or opportunity within the overall regulatory framework.

Although the outline has been set regarding cultivation, mezzo and micro licenses, uncertainty remains regarding the license lottery system. This uncertainty was also exacerbated by the issues surrounding whether, and how, Minnesota would allow early cultivation. Some cultivators raised concerns over what might happen if they are able to begin early cultivation but then lose out on the later license lottery. Others worried that if they do not begin cultivating early, they could forfeit additional points that could have secured them a license. Disruptions to the point-based allocation mechanism also raise pertinent questions regarding fairness and transparency through the licensing process. Addressing apprehensions surrounding straw applicants and ownership transparency is paramount to fostering trust and accountability within the OCM and its regulatory framework. It’s promising to see Minnesota legislators and regulatory agencies working in conjunction to address these issues early in hopes of fostering a robust market.

Leadership is critical for Minnesota cannabis program success

Establishing a flourishing cannabis market will require a form of early cultivation and production to ensure retailers are stocked with products to sell at launch and both the Legislature and the OCM are aware of that fact and working towards addressing these issues. The OCM’s leadership and decision-making on these issues have the potential to reshape and drive the trajectory of Minnesota’s legal cannabis market as we approach the much-anticipated retail launch in early spring of 2025. As Minnesota moves towards that launch, the discourse surrounding early cultivation serves as a litmus test for regulatory agility and stakeholder collaboration. By navigating the complexities of licensing, and regulatory concerns, and addressing the imperative early cultivation period, Minnesota is poised to address many tough questions and policy dilemmas before a single seed is sown or a single flower is sold under the new legal cannabis market.

The “marijuana mullet” is back with avengence in the cannabis industry as great top-line, headline-shocking, numbers for revenue got released with the usual massive losses on the bottom line, as usual.

Last year, an analysis of public filings by Green Market Report revealed that among the twenty largest publicly traded marijuana companies in the U.S., only one managed to turn a profit, while the rest collectively incurred a hefty $2.3 billion in losses. Despite generating over $8.7 billion in revenues altogether, these vertically integrated operators, with retail outlets, cultivation facilities, and manufacturing plants across various states, struggled to remain profitable.

These financial figures offer a glimpse into the overall performance of the cannabis sector. In 2022, a similar examination of financial filings indicated that merely two out of twenty-four public cannabis companies were profitable, with the sector as a whole facing losses exceeding $4 billion. However, it appears that losses have notably decreased year-over-year, signaling potential improvements in the industry’s financial landscape.

Top Performers and Underperformers

Green Thumb Industries (CSE: GTII) (OTCQX: GTBIF), based in Chicago, became the only cannabis firm to record net profits in 2023, with a $36.3 million profit on top of an amazing $1.1 billion in sales. This was a huge increase above its $12 million profit in 2022, demonstrating a stunning triple of yearly earnings.

In contrast, Florida’s Trulieve Cannabis Corp. (CSE: TRUL) (OTCQX: TCNNF) experienced the most significant setback of the year, with a whopping $527 million loss compared to $1.13 billion in sales.

However, Trulieve was not alone in its financial struggles. Curaleaf Holdings (TSX: CURA) (OTCQX: CURLF) of New York incurred losses of $281.2 million, despite leading in revenue among the twenty companies with an impressive $1.35 billion.

GTI, Trulieve, and Curaleaf were the exclusive trio to surpass the $1 billion revenue mark last year.

Other notable underperformers include:

– Ayr Wellness (CSE: AYR.A) (OTCQX: AYRWF), a Florida-based multistate operator, recorded a loss of $272 million.

– Cresco Labs (CSE: CL) (OTCQX: CRLBF) (FSE: 6CQ), headquartered in Chicago, faced losses amounting to $180 million.

– The Cannabist Co. Holdings Inc. (NEO: CBST) (OTCQX: CBSTF) (FSE: 3LP) from New York, reported losses of $174 million.

– Verano Holdings Corp. (Cboe CA: VRNO) (OTCQX: VRNOF), based in Chicago, incurred losses totaling $113 million.

The widespread financial struggles within the industry underscore the urgency behind potential regulatory changes, such as the Biden administration’s proposed shift of marijuana from Schedule I to Schedule III. Such a move could alleviate the industry’s tax burdens, potentially saving hundreds of millions annually, as estimated by various sources. However, the timeline for realizing these savings remains uncertain.

Market Upheaval

The dissimilarity between the evaluations from this year and the previous year emphasizes the volatility of the market, which is further emphasized by the removal of four firms from this year’s list.

MedMen Enterprises (CSE: MMEN) (OTCQX: MMNFF), one of the absentees, has essentially filed for bankruptcy. Due to a change of auditors, StateHouse Holdings (CSE: STHZ) (OTCQB: STHZF) and Vext Science (VEXTF) have not yet submitted their full-year financial reports to securities regulators.

The fourth omission, secondary multistate operator Red White & Bloom Brands (CSE: RWB), reported losses of $104.9 million and carried a debt of $240 million in the previous year, against revenues of $88.3 million disclosed in April.

According to Matt Karnes, Founder of GreenWave Advisors, the persistent losses stem from the exorbitant costs of operating within the federally illegal U.S. marijuana industry.

“Profitability and cash generation are formidable challenges,” Karnes remarked. “This underscores the urgency for government intervention… because financial resources are depleting rapidly. Section 280E is proving to be detrimental to all.”

Karnes acknowledged additional factors contributing to the sector’s financial downturn, including misplaced optimism surrounding the initial public offerings of many fledgling companies in recent years, and an underestimation of the competitive pricing in the illicit marijuana market.

Furthermore, political advancements at the federal level have been notably delayed compared to earlier industry expectations, resulting in failed expansion endeavors, unproductive infrastructure investments, and widespread price pressures, all culminating in diminished profit margins for the cannabis sector.

“The inability to accurately forecast when these dynamics will change, to decipher the political landscape effectively, presents significant challenges,” Karnes concluded regarding the ongoing financial setbacks. “This uncertainty remains a substantial obstacle.”

Emerging Trends and Future Outlook

Even in the face of economic uncertainty, several new developments in the cannabis sector point to possible directions for expansion and stability. The growing focus on cost control and operational efficiency is one such trend. Businesses are actively looking for creative ways to save expenses by simplifying their processes, allocating resources as efficiently as possible, and lowering overhead. These businesses want to improve their bottom line and lessen the effects of market and regulatory uncertainty by concentrating on efficiency.

The diversity of product offerings and market tactics is another noteworthy development. Companies that deal with cannabis are branching out from typical flowers and investigating new product categories including drinks, topicals, edibles, and wellness items. Targeting specialized markets and customer groups and customizing items to fit their requirements and tastes is also becoming more and more important. By lowering reliance on any one product or market segment, this diversification not only increases the variety of revenue streams but also fortifies the resilience of the market.

Looking ahead, the industry’s future prognosis is heavily reliant on regulatory developments and policy changes. The Biden administration’s prospective reclassification of marijuana from Schedule I to Schedule III may have far-reaching consequences for the business, including lower tax costs and better access to financial services. However, the timing and breadth of regulatory changes are unknown, providing hurdles for businesses navigating the changing regulatory landscape. Despite these uncertainties, ongoing innovation, strategic adaptability, and a focus on long-term sustainability will be critical in determining the cannabis industry’s resilience and development prospects in the coming years.

The other main problem the industry may never be able to overcome is, as Jeff Bezos put it so well, “your margins are my opportunity“.  Once the 280E tax breaks get worked through the system, and that cash bonanza gets dispursed, the industry will always face the unrelenting pressure of the illicit or black market.  As soon as prices start to get too high, where stores and brands start to increase margins, the illicit market will become that much more appealing for their lower prices.  If the legal industry tries to push prices too high, the black market will snag market share from more price conscious consumers.  There is a glass ceiling on how high the legal market will ever be able to raise their prices due to price pressures on the black market.

While consumers may pay for the appearance of safety through lab testing and the convience of a brick-and-mortar store, the fact remains that cannabis flower is 60% cheaper on the illicit market and edibles can be up to 93% cheaper when local and state taxes are taken into account. People will price shop when the spread between legal products and illicit products widen to unreasonable amounts.

Bottom Line

The cannabis industry’s financial struggles, as highlighted by the significant losses incurred despite substantial revenues, underscore the need for regulatory reforms and operational adaptations. While some companies have managed to thrive, many others have faced considerable setbacks, grappling with challenges ranging from regulatory constraints to market volatility. The emergence of new trends, such as cost management initiatives and product diversification, offers avenues for growth and resilience in the face of uncertainty. However, the industry’s future trajectory will largely depend on the pace and scope of regulatory changes, as well as companies’ ability to innovate and adapt to evolving market dynamics.

Margin compression and the ever-looming black market may always create a glass ceiling for cannabis product prices going forward. Push to hard on a string and the consumer will look to save up to 85% on prices by finding a new piece of twine.

THE MARIJUANA MULLET, GREAT ON TOP, BAD ON THE BOTTOM, READ ON…

THE MARIJUANA INDUSTRY MULLET MAY NEVER END, READ WHY!