DEA Postpones Cannabis Reclassification Hearing, Impacting Market and Industry Outlook

Hearing Delayed

The U.S. Drug Enforcement Administration (DEA) has postponed its cannabis reclassification hearing to December 2, after the U.S. presidential election, causing uncertainty in the market and affecting industry outlooks. The Department of Justice, which oversees the DEA, revealed that earlier this year, Attorney General Merrick Garland recommended reclassifying cannabis from a Schedule I drug to a Schedule III drug. Schedule I drugs are classified as having a high potential for abuse and no accepted medical use, whereas Schedule III drugs are considered to have moderate to low potential for dependence and accepted medical uses.

Market Reaction

The delay in reclassification triggered a sell-off in cannabis stocks on Tuesday. Shares of major cannabis companies saw significant declines: Curaleaf and U.S.-listed Canopy Growth fell by over 10%, Verano Holdings dropped 12.9%, and the AdvisorShares Pure US Cannabis ETF dipped 9.1%, after an earlier decline of up to 12%. Canada-listed Green Thumb Industries, Tilray Brands, and Trulieve Cannabis also faced losses of 8.6%, 6%, and 5%, respectively.

Political Implications

Analysts at TD Cowen suggested that the reclassification process will likely proceed regardless of the election outcome but expressed more confidence in Kamala Harris supporting the initiative than in Donald Trump. They also noted that Trump’s potential appointments for key positions like Attorney General, DEA Director, and Secretary of Health and Human Services could significantly impact the future of cannabis regulation.

Cannabis Use Statistics

According to the National Survey on Drug Use and Health for 2023 by the Department of Health and Human Services (HHS), marijuana remains the most commonly used illicit drug in the United States, with 21.8% of individuals aged 12 or older—equivalent to 61.8 million people—reporting use. Reclassifying cannabis would be a crucial step toward aligning federal laws with the growing acceptance of marijuana use at the state level.

State vs. Federal Laws

Currently, medical cannabis is legal in 38 states and various U.S. territories, while recreational use is permitted in 24 states and Washington, D.C. Despite this, marijuana remains illegal under federal law, creating a complex regulatory environment for businesses and consumers alike.

Industry Concerns

Pete Sahani, CEO of cannabis hardware firm the Blinc Group, highlighted the challenges posed by the postponement, stating, “The extended wait for rescheduling decisions could maintain the status quo, leaving businesses to navigate a patchwork of state regulations and ongoing federal ambiguity.” The industry continues to push for federal reforms that would simplify operations and reduce the risks associated with the current legal inconsistencies.

The postponed hearing adds another layer of uncertainty for the cannabis industry as it grapples with fluctuating market conditions, evolving regulations, and the broader implications of federal and state policy misalignment.