🔒CT’s cannabis industry awaits answers on marijuana rescheduling

The cannabis industry, in Connecticut and beyond, will be closely watching proceedings in Washington, D.C., over the next two weeks as the federal government begins a hearing that could reshape marijuana regulation nationwide. The hearing, which will be conducted by the Drug Enforcement Administration and run through July 15, will consider the broader rescheduling of marijuana from Schedule I to Schedule III under federal law. Many industry participants view such a move as a major step toward broader acceptance of cannabis and believe it could improve access to banking, capital markets and certain federal tax benefits. The proceeding comes just two months after federal regulators reclassified medical marijuana as a Schedule III controlled substance. Adult-use cannabis remains a Schedule I drug, a classification reserved for substances — including heroin and LSD — that the federal government considers to have a high potential for abuse and no accepted medical use.

“Where we are today is monumental for the business,” said Anthony Coniglio, president and CEO of New Canaan-based NewLake Capital Partners, a provider of real estate capital to state-licensed cannabis operators. The rescheduling of medical cannabis has already led to seismic changes in the industry, Coniglio said. He points to the fact that a cannabis company has, for the first time, listed its shares on the New York Stock Exchange. Florida-based multistate operator Trulieve Cannabis Corp., which has a dispensary in Bristol, debuted on the exchange June 10. By June 17, California’s Glass House Brands announced it had also applied to the NYSE. “It ​sets ​these ​businesses ​up ​to ​be ​able ​to ​attract ​new ​capital, ​recapitalize ​their ​balance ​sheets ​and ​have ​a ​more ​stable ​financial ​profile ​and ​a ​more ​regular ​access ​to ​banking ​and ​capital ​markets,” Coniglio said.

Trulieve achieved its listing by splitting its business in two — one part medical, the other adult-use. However, that’s a complex and expensive transaction that may not be viable for smaller players in the industry, according to attorney Jason Klimek, who co-leads law firm Harris Beach Murtha’s cannabis industry team.

‘Clear as mud’

While many in the industry welcomed the April reclassification of medical marijuana, the policy shift has raised new questions for cannabis companies. For example, the DEA established a new registration system for medical marijuana businesses, forcing operators to decide whether to sign up and come under federal oversight. Companies had 60 days to apply. Registration could offer legal protections and improve access to financial services, but it also requires businesses to comply with new federal requirements and disclose detailed operational information. The decision to register may be especially complicated for companies that serve both the medical and recreational markets, since adult-use marijuana remains illegal under federal law. “If the DEA is reviewing a medical licensee who also holds an adult-use license, what do they do in that circumstance?” Klimek said. “They’re evaluating you for medical, but by the way, over here is your Schedule I drug manufacturing. Does the DEA just ignore that?”

Hartford-based cannabis operator Fine Fettle chose to register because it “was the best and right thing to do,” according to Chief Operating Officer Ben Zachs. The company operates both medical and adult-use cannabis businesses. Its Connecticut facilities serve both markets, while its Georgia locations are exclusively medical and its Massachusetts store serves only adult-use customers. Zachs said he will be watching the federal hearing closely for guidance on how companies that operate across both markets should navigate the new regulatory landscape. But not every informed observer is confident businesses will get the clarity they are seeking. “I think it’s as clear as mud, the way this will work,” Coniglio said. “It’s not as if we will have a hearing and on July 15th we will have a gavel dropped by the administrative law judge and she or he will say ‘Schedule III.’” For one thing, multiple lawsuits have already been filed challenging the April rescheduling decision. The states of Indiana and Nebraska have filed suit, as has a group that includes physicians, an addiction recovery clinic and advocates for victims of cannabis injury.

Huge upside

While Coniglio sees current events as a pivotal moment for the industry, it has arrived much later than he once anticipated. When he founded NewLake in 2019, his pitch deck for investors projected full federal legalization by 2026. His company now owns 34 properties across 12 states, making it one of the largest owners of cannabis real estate in the United States. And while the sector is complex and progress is slower than anticipated, he says the potential upside is huge. “We would analogize this to cell towers in the late 1990s, a misunderstood asset class,” he said. “In the late 90s, people weren’t really understanding how prolific they would be in this country these days.” Louis Rinaldi, a medical cannabis patient and advocate, also believes the federal process lacks clarity or a robust timetable, leaving companies in limbo when it comes to staying in compliance with the law. “There’s the existing layer of state-level compliance with (the Department of Consumer Protection) regulations and Connecticut statute and now they’re going to have to balance that with new and direct DEA oversight where a simple inventory error could potentially trigger a federal violation,” Rinaldi said. Another potential concern for smaller cannabis businesses is that rescheduling could eventually pave the way for interstate transport. Currently, cannabis products cannot legally cross state lines, creating separate state-by-state markets that largely insulate local operators from out-of-state competition. “It doesn’t take a lot of imagination to think that maybe these big medical cannabis companies would start shipping in cannabis for the medical side from low-cost states,” Harris Beach Murtha’s Klimek said. “And so, that really starts to potentially change what the market looks like.” Klimek said the hearing raises so many unanswered questions that it is difficult to advise companies on the outcome — or even when any changes might take effect. With that in mind, Zachs, of Fine Fettle, says he’s keeping his head down, working on his business and worrying about the things he can control. “I’d ​suggest people ​spending ​more ​of ​their ​time ​focusing ​on ​the ​World ​Cup ​than ​this, ​if ​they ​want ​to ​see ​end ​results,” he said.