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This LEAK Could Be HUGE for Cannabis Stocks in 2024

You are late if the market already knows.

Last week I stumbled upon a potentially huge leak on cannabis rescheduling from a relatively small account on X. 

I have been waiting for this news to come out for 4 years now and it’s finally happening. 

And it’s coming out a little bit ahead of schedule.

I managed to find Game Stop before it hit meme status and I am hunting for a second unicorn.

The cannabis sector is a prime target because nobody is talking about it. 

Marijuana stocks are near all time lows while massive reform is right around the corner, but the market doesn’t know it yet.

On the go? Watch the video HERE.

Why We Want to Reschedule Cannabis?

Before I get into the leak, I want to quickly give some context on the current state of marijuana stocks and why this leak is a much anticipated development.

Being Schedule 1 or Schedule 2 hurts the profitability of businesses that sell cannabis because of the tax treatment. You are not allowed to deduct business expenses from your gross income if that income is associated with trafficking Schedule 1 or Schedule 2 drugs.

Drug Enforcement Administration (DEA) Drug Scheduling

Here is an example of how that might play out.

This hypothetical business has a gross revenue of $1,000,000. While cannabis is Schedule 1, they are paying an effective tax rate of 70%.

They’re paying such a high tax rate because they cannot deduct business expenses from their gross income. The government views their income as $350,000 and taxes them on $350,000, even though the company is really only profiting $150,000.

How does Section 280E hurt state-legal cannabis businesses?

In this case, if cannabis was no longer Schedule 1 or Schedule 2, the company will instantly profit $105,000 on the year instead of just $45,000 on the year. That is more than a 2x increase in profit instantly just from the rescheduling.

When most of us think about paying taxes as individuals, our take home pay really doesn’t change that much. 

The average effective tax rate in America is 25%.

If you found out that the government was going to cut your taxes in half tomorrow, you would be stoked. But in reality, your take home pay is only increasing by about 15%.

How does rescheduling affect state-legal cannabis businesses — Illustration by author

In this case, the difference is huge. Going from 70% to 30% effective tax rate more than doubles a company’s profit.

But it doesn’t stop there.

The increased profit margins will allow legal cannabis companies to compete with the black market. 

More profit combined with more competitive pricing will result in massive growth in the whole sector.

If cannabis is rescheduled to 3, 4, 5, or even de-scheduled, then we can expect cannabis stocks to go up thanks to the increased profit and insane growth potential.

How Cannabis Rescheduling Works

So will cannabis be rescheduled? 

The leak I referenced earlier implies that it just might.

There are two ways that a drug can be rescheduled.

Path 1. Legislative

The first path is through Congress or the legislative branch. You can see the path is pretty straightforward. Congress can simply pass a law amending the Controlled Substances Act, allowing a drug to be moved from one schedule to another.

Simple, right?

How Does Marijuana Get Rescheduled?

Wrong!

Democrats do not have a supermajority in the Senate, meaning that Republicans can easily block marijuana rescheduling by using the filibuster.

US Senate Political Group Distribution in 2024

Generally, a filibuster just means that one or more senators can block the vote altogether unless there is a supermajority, meaning that 60 out of 100 senators have to vote to stop the filibuster.

So Legislative branch is out.

Path 2. Executive

The second path is purely through the executive branch, which Democrats have complete control. 

If we go back to the chart, the first step is to petition the attorney general of the DOJ, the department of justice. This step was completed by Joe Biden himself on October of 2022.

Joe Biden called for a federal review of marijuana scheduling. He directed his executive order at both of the cabinets that have a role to play in this process, the Department of Justice, the DOJ, and the Department of Health and Human Services, the HHS.

Biden Calls For Review of Marijuana Rescheduling

Step 1: Normally in step 1, an outside party would file a petition to the attorney general of the DOJ for rescheduling of a certain drug. 

Step 2: The DOJ would then review the petition and then decide on forwarding it to the HHS. 

Step 3: The HHS then takes some time to review the 8 criteria and decide where a drug needs to be scheduled or if it needs to be scheduled at all. It took about a year for the HHS to complete Step 3.

Step 4: On August 30th, 2023, they completed Step 4 by formally recommending to the DEA, the Drug Enforcement Administration, that they recommend marijuana be rescheduled from Schedule 1 to Schedule 3.

Health and Human Services (HHS) Rescheduling Recommendation and SAFER Banking for Cannabis Sector

Step 5: So here we are, we’re at the final step. The Attorney General will initiate the rule making procedures. But it hasn’t happened yet.

What is The Holdup?

Why is the DEA still sitting on this?

Well, it turns out there is a second variable.

The science component has been met by the HHS. They have determined that cannabis is not at high risk of abuse and it does have medical uses.

Health and Human Services (HHS) Rescheduling Recommendation and SAFER Banking for Cannabis Sector

But there are still legal considerations. This is where the leak I spoke of comes into play.

Okay, so in this section it says that:

They can add to such a schedule or transfer between schedules. 

They can remove drugs from any schedule. 

21 U.S. Code § 811 — Authority and criteria for classification of substances

But what is the exception? 

21 U.S. Code § 811 — Authority and criteria for classification of substances

There we have our answer. 

We have a treaty that requires us to control certain substances. 

United Nations Single Convention on Narcotic Drugs in 1961

So, no recreational usage.

Is It Really Over?

Our hands are tied. Recreational marijuana isn’t happening.

Wait a second.

Canada is on here, and so is Germany. 

United Nations Single Convention on Narcotic Drugs — List of Countries

Canada wasn’t stopped in 2018 when they decriminalized cannabis and Germany wasn’t stopped in 2024

So maybe there is a legal precedence.

In fact, it was reported on March 21st of 2024, that the HHS submitted a request to the office of legal counsel, the OLC (of course you have to have another acronym). They submitted a request for a legal opinion on the implications of rescheduling marijuana.

Congressman Demands Answers From Biden Admin on Marijuana Rescheduling Legal Opinion Request for DOJ

The Office of Legal Counsel (OLC) is also in the Executive Branch and their opinion would be binding on the DEA in matters of law. The OLC opinion has the potential to make or break the last roadblock that the DEA has in the rescheduling of marijuana.

This is where the leak finally comes into play. 

On April 17th, I was spending too much time scrolling Twitter and looking at marijuana rescheduling news when I came across a post from Anthony Farrell.

“ My sources tell me that the OLC legal opinion requested by the HHS is done and ready to be published. It is also validating the HHS recommendation, and in our favor regarding rescheduling.”

This tweet, if true, could be huge.

Anthony did reiterate again and again that he was not commenting on the timing of when the OLC would publish, only that they had made their decision and were ready to publish.

Anthony is also a co host on a podcast called TDR. Here is a short clip of him talking about it.

A Legal Case For Cannabis Rescheduling
In our latest Trade To Black podcast we discuss the development this week involving the Health and Human Services…www.youtube.com

To be clear, I do not know much about Anthony Varrell’s credibility because I am not super familiar with him. I do know that he is big in the marijuana space, and his reputation is important to him. But he’s also clearly an investor in marijuana, so he would be incentivized to potentially pump the stock up so I would want to see another source before I really jump to conclusions.

It turns out there is another source.

“This is the Last 04/20” with Marijuana as Schedule 1

Two days later on April 19th, I saw more posts on Twitter referencing this same rumor that came from the Benzinga Capital Conference. This time, the tweet quotes Earl Blumenauer who is a US representative.

“ According to MJ Biz rumors swirled this week that the department of justice office of legal counsel has already made up their mind. Blumenauer also said he heard those rumors, he said Friday, and as recently as yesterday, talked to some high level people in the Biden administration, there is the assumption that this is going to move forward, it’s going to be positive, it’s going to be embraced.”

So What Now?

It is getting more and more difficult for me to doubt the validity of this rumor now that multiple sources have come out in the positive.

With the OLC on board, I cannot see a world where the DEA does not agree with the HHS recommendation on cannabis rescheduling.

On top of that, Biden is incredibly motivated to get this done before the 2024 election. All of the parties involved are under the attorney general of the DOJ and Biden can hire and fire whoever he wants to get this pushed through.

US Justice Legal Map

So, you are ahead of the curve now that you know marijuana rescheduling could happen soon.

The next question is, what are you going to do about it?

If you’re ready to potentially 10x on this stock play, check out my video where I go over the best ways you can position yourself to profit off of marijuana rescheduling right HERE.

Catch you on the flip side.

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