What is the current classification of cannabis, and how would its reclassification affect its legal status?

Currently, cannabis is a Schedule 1 drug. As a Schedule 1 drug cannabis is considered to have “a high potential for abuse” and “no current acceptable medical use in treatment in the Unites States. This categorization aligns it with substances like Heroin or Ecstasy. However, a probable outcome of rescheduling would involve shifting cannabis to Schedule 3. In Schedule 3, substances are acknowledged to have less potential for abuse compared to those in Schedule 1 or 2, and they are recognized for their accepted medical applications.

How would a Schedule 3 classification impact Ascend and the cannabis sector?

Under a Schedule 3 classification, cannabis wouldn’t be legalized, but it would alter its legal status under the Controlled Substances Act (CSA). This change would mean that activities such as manufacturing, distributing, and possessing cannabis would be subject to regulation rather than outright prohibition. Additionally, state-level medical marijuana programs might need to conform to CSA and Drug Enforcement Administration (DEA) regulations, as well as public health laws. Compliance with these regulations would likely be necessary for operating legally within the cannabis industry.

What will stay the same if cannabis moves to Schedule 3

• Cannabis will not be federally legal. It will still be on a state-to-state basis.
• Cannabis companies with “plant touching” operations in the U.S. will not immediately be able to list on major U.S. Exchanges.
• FDA will not assume any immediate or enhanced regulatory oversight or enforcement capability with regard to state-legal cannabis operators and operations.
• Interstate commerce in cannabis will not be legal.

What will or could change if cannabis moves to Schedule 3

• The FDA could take a more active role in regulating cannabis. While technically the FDA already has the power to regulate cannabis, rescheduling may prompt them to be more hands on than they have in the past.
• Rescheduling could cause Nasdaq and NYSE to revaluate their positions on “plant touching” U.S. companies. Many pharmaceutical companies like Bayer sell Schedule 3 drugs while being listed on the Nasdaq and NYSE
• Opens the door to interstate commerce. Rescheduling would make interstate commerce legal immediately. However, rescheduling could make state laws that require all cannabis sold in state to be produced in state to be more susceptible to legal challenge under the Dormant Commerce Clause.

Banking impacts?

Reclassification to Schedule 3 would eliminate 280e taxes. It would allow Ascend to deduct the costs of selling product on federal income taxes. Similarly to how any other business operates. Additionally, it may reinvigorate capital markets, with investors seeing less risk in a Schedule 3 drug and one potentially listed on the NYSE and Nasdaq.