President Joe Biden asked his administration to review how cannabis is classified under the Controlled Substances Act this month — a move food and beverage producers in the space are watching closely after years of stalled federal legislation.
Last week, the U.S. Department of Health and Human Services (HHS) recommended that marijuana be reclassified, according to a letter sent to the DEA by HHS Secretary Rachel Levine, first reported by Bloomberg.
HHS said it completed an 11-month research period about the safety of marijuana and its classification.
Erwin Henriquez, a market research consultant at Euromonitor International, said the eventual rescheduling could be good news for food and beverage companies wanting to be part of the cannabis-infused market. But in the short term it will not spur greater availability of the products. Henriquez added that the administration’s move could benefit producers focusing on medicinal products as opposed to adult-use cannabis, which is legal in select states.
“It’s still not making adult-use legal, so for that we will need a lot of other things to be in place.” Henriquez said about the potential rescheduling. “I don’t think we’re at a point where large CPG companies are going to be like, ‘Ok now things feel safe.’”
Demand for cannabis-infused food and beverage products continues to grow despite the uncertain legislative situation. It is projected to expand at a compound annual growth rate of 19.32% by 2027, according to TechNavio.
Currently, cannabis is classified as a Schedule I drug, a category intended for drugs with a high potential for abuse among those who consume it. HHS recommended the drug be moved to Schedule III, which are accepted in medical use and indicate a lower potential for abuse.
The cannabis food and beverage sector, which analysts believed held promise during the second half of the 2010’s, saw stagnation earlier this year when the FDA failed to regulate the drug on a federal level. But the news about government departments taking another look at how cannabis is regulated has sparked renewed hope.
Previously, Biden pardoned all prior marijuana simple possession offenses last October. Last week, White House Press Secretary Karine Jean-Pierre said the president has “always” been in favor of legalizing use of the drug for medical purposes.
Potential hope for THC-infused products
After continuous hurdles in achieving federal legislation that would make the drug more accessible to consumers, the industry may have reason to be optimistic about the reclassification.
Many in the industry saw funding drop when the FDA failed to regulate cannabis, but now producers began to see positive signs following the recent rescheduling announcement.
Cannabis grower Canopy Growth, which beverage giant Constellation Brands bought a 35.7% stake of before transitioning to a “passive” role last fall, saw its stock price rally last week, gaining nearly 50% at peak rally, SeekingAlpha reported. Other cannabis producers including Tilray and Trulieve Cannabis Corp. saw stocks increase 28% and 62%, respectively, following the news.
Despite Canopy’s stock price increase, the company has a long way to go to restore its prior financial standing. The spike in its stock price last week followed an 84% drop in its price over the last year, according to SeekingAlpha. Last October, Constellation reported a $1.1 billion writedown in the value of its 2020 investment in the company.
Given the legal gray area where cannabis companies can only sell their products in select states, some have resorted to other streams of income. Tilray announced last month it reached a deal with Anheuser-Busch to purchase eight of the alcohol giant’s beer and beverage brands. While terms of the deal were not disclosed, the company said that it will bump Tilray up to the 5th largest craft beer company in the U.S.
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