The Department of Justice (DOJ) confirmed that it has started the formal rulemaking process to reclassify cannabis to Schedule III. This significant step reinforces the positive outlook for cannabis stocks.

However, senior analyst Pablo Zuanic from Zuanic & Associates notes that U.S. plant-touching stocks might not see immediate benefits due to factors such as poor liquidity, over-the-counter (OTC) status, lack of custody and limited institutional involvement.

Key Developments And Implications

The Office of Legal Counsel (OLC) opinion supports the Attorney General's (AG) authority to reschedule cannabis, arguing it would not violate international treaties if accompanied by regulatory action, such as a revised Cole Memo. The OLC's interpretation emphasizes that the AG has the power to move forward without waiting for the Drug Enforcement Administration (DEA), which has not fully aligned with the process.

The Biden administration seems to consider this a priority, with the AG stepping in to expedite the rescheduling process.

Zuanic points out that the completion of the Office of Management and Budget (OMB) review in just 21 days, well ahead of the 90-day maximum, signals a fast-tracked effort. The OMB is responsible for overseeing the implementation of the administration's vision across the Executive Branch, including the review of proposed regulations and policies.

Timeline for Implementation

Key dates include:

• May 21, 2024: Publication of the proposed rescheduling draft ruling (PRDR) in the Federal Register and the start of a 60-day public comment period.

• June 21, 2024: Deadline for interested parties to request a hearing.

• July 20, 2024: End of the public comment period.

• August 20, 2024 (or September 20, 2024): Expected publication of the final ruling. The final ruling becomes effective 30 days after publication, potentially around September 20, 2024.

Potential Risks And Wild Cards

Zuanic identifies several wild cards that could influence the process and outcomes:

• Scope of Cole Memo II: Whether it includes SAFE banking language, provides a safe harbor for U.S. exchanges to list plant-touching stocks, and addresses FinCEN-related matters.

• Legal Challenges: Judicial challenges are expected, but legal scholar Shane Pennington considers a stay unlikely.

• Political Factors: Statements from Donald Trump and their impact on public opinion.

Sector And Stock Impacts

The rescheduling news has broader implications for the cannabis sector.

Canadian licensed producers (LPs) like Canopy Growth Corporation (NASDAQ:CGC) and SNDL (NASDAQ:SNDL) might need to form partnerships with U.S. companies to capitalize on the changing landscape.

Companies such as Tilray Brands (NASDAQ:TLRY), Aurora Cannabis (NASDAQ:ACB), and others are under scrutiny for their strategic moves in response to the evolving regulatory environment.