Landscape for Medical cannabis investment The United States has undergone a major transformation since the Justice Department ordered on April 23, 2018 to reclassify some medical marijuana products in Schedule III of Controlled Substances Act. The Acting Attorney general Todd Blanche’s pivotal order, which was signed on April 23 by him, has already revived interest in venture funds, and led cannabis drug developers, who are now considering new funding and public listings, to reconsider their plans. Hoodline. Industry stakeholders view the policy change as a way to streamline banking operations and facilitate clinical trials in the United States. It could also open up doors for future Initial Public Offerings.
Reclassification of Regulations and the Market Impact
In its order, the Justice Department places FDA-approved products of marijuana and any medical-marijuana sold in states that have medical-marijuana licensing laws into Schedule III. The reclassification will also begin an expedited evaluation of a broader rescheduling. The Justice Department has framed the adjustment as an effort to support medical research and maintain strict federal control. This has had an immediate impact on the industry, easing longstanding barriers which previously discouraged mainstream investors.
- Reclassification of state licensees mandates new DEA Registration requirements.
- The scope of the directive is restricted to FDA-approved products or medical devices covered by state programs.
- Legal analysis from Holland & Knight indicates the order directs the IRS to consider retrospective relief from Internal Revenue Code Section 280E for qualified state licensees, and instructs the DEA to fast-track registrations.
Corporate Financing and the Emerging Prospects of IPOs
The new regulatory framework has led several biotech companies to engage with investors again. Ananda Pharma, as reported by Reuters plans to raise between US$10 and US$20 in private financing within the next few months. IGC Pharma which is working on a liquid THC low dose for Alzheimer patients is also considering raising US$50 million later in the year. Avicanna’s and BRC Therapeutics executives have stated that the federal reclassification eases the reputational burdens and may pave way for IPOs in major markets for companies running tightly regulated drug program. BRC Therapeutics CEO George Hodgin referred to rescheduling in company statements as “a moment of watershed”, noting how it brought new attention to BRC’s clinic programs.
The FDA has only approved Epidiolex as an epilepsy medicine in the United States, which is reflected on its FDA label. This precedent is what has traditionally deterred investors from traditional pharmaceutical companies.
Operating and Legal Facilitation
Legal advisers predict that Schedule III will ease several operational difficulties for operators with medical licenses. The reclassification of Schedule III will allow medically licensed operators to access deposit accounts more easily and deduct their ordinary business costs, which were previously restricted by the federal government. However, Holland & Knight cautions that card networks and many financial institutions are likely to proceed with prudence. The DOJ’s action also does not legalize recreational or medical cannabis at the federal level, while adult-use products are still classified as Schedule I. This is important to remember, according to AP. It is important to note that this maintains an extremely complex regulatory framework for companies operating in both the medical and adult markets.
Future considerations for Medical Cannabis Investment
An expedited DEA meeting, which is scheduled to begin on June 29th, will examine a broader rescheduling for marijuana. These developments are causing investors, banks and payment networks to evaluate the next step. Holland & Knight has provided insights into how the hearing schedule and subsequent IRS guidance on Section 280E could influence deal structures and cash flow within the sector. For investors and founders, this environment presents a small but important reopening to the market. This is especially true for companies who have FDA-aligned regulated programs. Although operational, state-law, and tax complexities continue, the focus is on the fundraising announcements by biotech companies and the forthcoming regulatory guidance in the lead up to the DEA hearing in June.
Disclaimer: The information contained in this article does not constitute medical advice. Hemp Gazette makes no medical diagnoses, recommendations or treatment plans. Consult a healthcare professional before you make any decision regarding your health. The Therapeutic Goods Administration in Australia (TGA) has not evaluated any statements regarding the therapeutic use of cannabis or hemp-derived products. TGA regulates the access to medical cannabis in Australia.