#004 - What Does Rescheduling Mean for My Cannabis Business? w/ Khurshid Khoja

Speaker 2: 1:35

Hey everybody, I'm Ben.

Speaker 1: 1:37

And I'm Anna Rae.

Speaker 2: 1:40

And this is High Spirits what kind of high spirits? Where we're serving up unfiltered insights, revealing our insulators perspective and illuminating transformative strategies for people, you who are trying to make friends and friends. What happened here? Let's go, anna Rae, how are you doing?

Speaker 1: 2:02

I'm doing so good. It's been a really great week. It started off with a bang. I went to the final Dead and Company show in San Francisco on Sunday night and saw multi-generations of cannabis smoking going on from 85 year olds all the way down, and it was a really good, fun way to kick off the week and reinvigorated me for the work that we're all doing. So it was great. How about you? Where are you today? This isn't your normal background.

Speaker 2: 2:34

This is not my normal background. I'm out of my cave. I'm sitting, actually, in the Hamptons, which I just got in late last night, and while I look very put together today, if I do say so myself, I was a hot mess last night. It was kind of just indicative of me. I like to kind of like I don't know, I kind of like fly by the seat of my pants sometimes. I don't like to book things in advance, I fly in. I was like I'm going to grab a car and I get to the car rental and I'm like, oh, I don't have a license. And it turns out that New York is very strict about having to have a physical license and like it's just one of those frustrations it's 2023 people, why do we need to carry around physical identifications? Like can't we have retina scans or something like that? Like anyways.

Speaker 1: 3:27

And maybe you don't lose your driver's license too.

Speaker 2: 3:31

Well, I can be a little bit scatterbrained at times. I can't keep track of everything. I'm trying to run a business, I'm trying to do a podcast, like I can't be responsible for everything, so it's a lot, including myself. Anyways, I figured out the Long Island Railroad last night. I finally got to my hotel, which is lovely probably around 11 o'clock last night, but I did get to wake up and do my morning routine and instead of walking around my neighborhood, I got to walk on the beach, which was really nice. So happy to be here.

Speaker 1: 4:02

Amazing. Well, I think we've got a really great show today and a really big topic, so let's just dive in. Sound good.

Speaker 2: 4:10

Yeah, I think. I think we're going to need as much time as possible.

Speaker 1: 4:13

Awesome. So today's topic is what does rescheduling mean for my cannabis business? And this is a big deal. Broadly, I think that most cannabis business operators and investors more elistically, do not want cannabis to be federally illegal on the schedule one of the CSA. However, the reality and the uncertainty of change is really another story. So the background Marijuana is listed as a schedule one controlled substance under the controlled substances act and has been Buu Buu. Was an act in 1970.

Speaker 1: 4:50

So it's 1970. This is, this has been our reality. But just less the year ago, in October of 2022, president Biden instructed the DOJ and the Department of Health and Human Services to initiate the administrative process to review expeditiously how marijuana is scheduled under federal law, and since then, xavier Becerra, the secretary of HHS, has periodically met Xavier right. I have met him multiple times on my Twitter feed. As a picture of us you guys can all go find it.

Speaker 1: 5:29

And yeah. So he has periodically commented on the process, including most recently during a press conference in June that relevant federal agencies are working to complete the administrative process of the administrative review of cannabis scheduling this year. So this is big. The room meal is super active. Many of us think we have a line to what's ahead, but we figured we should ask one of the most knowledgeable folks that we could think of to come on and help us work through this.

Speaker 2: 6:05

Yeah, yeah, I'm super excited for our guest today. He's a true OG, absolutely Very smart. Not the typical, I guess, reference when people think OG that are not in the cannabis industry. When you're in the cannabis industry and you're professional OG is a good thing. Anyways, I'm losing myself here. So since 2012, kershid Koja has just been a total mensch and involved with so many different organizations as their general counsel.

Speaker 2: 6:37

I believe in Kershid you're going to have to correct me if I'm wrong, but 2012 kind of came on as the chair or sorry, the general counsel and co-founder of the Emerald Growers Association. He then was the general counsel for the cannabis, the California Cannabis Industry Association board member and vice president of policy committee for the Minority Cannabis Business Association. I could say all these in letters but it would just be an alphabet soup that everyone would get confused over. And then finally, chair Emeritus and my kind of co-executive board member for the National Cannabis Industry Association, which he's been a huge part of for many years now. And, of course, he's been the CEO and founder of Greenbridge Corporate Council. So, kershid, a little steep in the cannabis industry, are we?

Speaker 3: 7:32

Yeah, I've been busy the last dozen years or so in the cannabis industry.

Speaker 2: 7:37

Yeah, yeah. Well, thank you so much for joining us today. It's always a pleasure. I rely on your insights to really kind of make sense of what's going on in, especially the realm of the policy and legislation that's landing. And the big topic, as Anna Rae pointed out, is rescheduling. I mean, this is something that we've been talking about for decades now and it seems like it's finally here like that. The president has declared that he wants it done within the next year. This is a big step right.

Speaker 3: 8:12

Absolutely. It's something that advocacy groups like Normal, for example, have been trying to get for decades right and unfortunately they have not succeeded as we'll talk about later in more detail as well and it definitely is a reason to take a breath and to kind of take a pause before we get too excited about what could potentially happen with this latest push for rescheduling Gotcha.

Speaker 1: 8:51

Well, and you've written extensively about this. When we decided we wanted to have this conversation, we both thought of you. First. You published a white paper recently. It was 20 pages. People should go find it on the internet it's easy to find. But really today we wanted to talk to the people that we know are listening out there, who are people that work in cannabis, that own cannabis businesses, run cannabis businesses, invest in cannabis business, and help all of us to understand how might reshuffling, how might rescheduling, reshuffle the deck. So can you explain to us kind of the big picture of rescheduling and if there's any kind of insights into where it will land, and help us kind of start to unpack this?

Speaker 3: 9:39

Sure. So you know, from a kind of 10,000 foot level rescheduling refers to moving cannabis from schedule one to schedule three under the control substances act, and so what that means is that the federal government would finally acknowledge a medical use for cannabis which they had been denying through the schedule one designation. For you know, since since the CSA was enacted, and so that would have a number of follow on effects potentially which we can kind of unpack as we get further into the discussion. But one of the big drivers, there's a couple of big drivers for rescheduling, right One from my business perspective. Rescheduling advocates are saying, and correctly, that if we reschedule from schedule one to schedule three, then internal revenue code section 280E would no longer apply to state licensed cannabis businesses. That would be huge, that's a huge deal yeah yeah, it's a.

Speaker 3: 10:53

it's a big deal, and we all, whether you're, you know, a publicly traded MSO or you are a small mom and pop, social equity licensee that is going to help you for sure. Additionally, I think it's worth noting that you know the likelihood of criminal prosecution for tax evasion also goes down when you no longer have to deal with 280E, and so, from a business perspective, you know somebody who's operating in the industry today like I think that is the biggest change, that biggest benefit that you will get from rescheduling right.

Speaker 1: 11:32

They're also Is it a sure thing at schedule three that 280E would go away? Because I have heard some people say that it still wouldn't go away for adult youth programs. Because schedule three would still mean that cannabis was a medical product and not a adult youth product, and so for those that were buying and selling in the adult youth space it would still be federally illegal.

Speaker 3: 12:01

Now I mean, the designation is not going to be just for medical cannabis, right? If cannabis is rescheduled, it's going to be all cannabis, regardless of whether you are happening to be having to be selling it in the medical market or the adult youth market. The federal designation is going to be across the board, right? So it doesn't really matter. You will still benefit from the move from schedule one to schedule three, because the tax code specifically calls out controlled substances that are scheduled one and scheduled two as being subject to 280E.

Speaker 1: 12:37

Wow, that would be huge. Can't even imagine, and how fast will that happen? So if, at the end of the year, javier Becerra says President Biden, we have done our analysis and our recommendation is schedule three, what happens next?

Speaker 3: 12:57

What happens next is that there is a rulemaking proceeding right.

Speaker 3: 13:01

The you know where that recommendation goes from HHS and FDA goes to the DEA next, right, and DEA then initiates a formal rulemaking proceeding on the record where you know you can have an administrative hearing.

Speaker 3: 13:19

Essentially it's, you know, much like a trial right. So there's a lot of process involved there that isn't part of the normal rulemaking process. The DEA then will consider the HHS FDA recommendation and then will make its own analysis on whether or not rescheduling is warranted, right? So while this process is on an accelerated, you know, time frame at the urging of the president so, as you mentioned, you know Secretary Becerra has said hey, by the end of this year we're going to have our recommendation, hhs's recommendation to the DEA wrapped up and we're going to send that over to the DEA right, generally speaking, with other rescheduling processes for other substances, you know it can take between two to three years for HHS and FDA to complete that work and to provide that recommendation to the DEA. The total time taken in the rescheduling process you know I've heard for rescheduling advocates that you know nine years approximately is kind of the average time that it takes, right? So that's a far cry from getting it all done before end of year, right? So I don't think. Nine years.

Speaker 1: 14:38

Holy crap, damn it.

Speaker 3: 14:44

You know, you really do, accelerate it. Like I don't expect to see, you know, a rescheduling decision by end of this year. It's just not going to happen.

Speaker 1: 14:53

And so it moves into the realm of the DEA, and the DEA has historically not been a great friend to cannabis. Yeah, I was going to say the same thing.

Speaker 2: 15:03

These other bodies the DEA, the FDA they haven't exactly been adopting a sense of movement. Yeah, Is this a forcing mechanism, I'm sorry. Is it a forcing mechanism to get them to act, or is there a potential? Or is that what leads to the nine years the DEA and the FDA trying to wrap their heads around this? And yeah, it's the process itself.

Speaker 3: 15:27

right, the process itself does take time. They, the process, is laid out in the control substances act, so it's not like they are kind of winging it. Right, they have steps that they have to go through and there are specific criteria that have to be met as well. Right and so. But you're right, the DEA has not historically been friendly to the cannabis reform movement. And you know, as I mentioned normal earlier. You know, normal, the National Organization for the Reformation of Marijuana Laws for those who aren't familiar has tried to have cannabis rescheduled on, you know, at this point now, multiple times right, with the same result, where, you know, the FDA doesn't necessarily doesn't find accepted medical use. You know, and they are able to kind of, you know, put it to bed from there.

Speaker 3: 16:26

Right, there are a number of other ways in which the DEA has said like, hey, this is not going to move forward. You know, even if there were accepted medical use, we're not so sure that we can do this because of our international treaty obligations which, you know, we're violating those same international drug treaties right now, you know, and there's been no consequence so far, to countries like Uruguay and Canada bucking the trend and saying, hey, we're going to legalize cannabis in our country, despite what the single convention on, you know, on Narcotics says, and they haven't suffered any consequences. But the DEA does, you know, rely on that argument. It relies on HHS and FDA's findings as well, but for reasons that I think are really well covered in some op-eds, that Paul Armitano, who at Normal, who is part of the Brain Trust at Normal and a long-time advocate, has laid out very clearly in his pieces why he doesn't think this is going to come to fruition, based on the experience as Normal has had with respect to this process, both, you know, with the FDA and with the DEA.

Speaker 1: 17:48

So Normal thinks it's just, it's going to be a wasted effort and that nothing will actually happen.

Speaker 3: 17:54

They think nothing's really changed. You know that would lead the FDA to come to a different conclusion about accepted medical use. Right, and accepted medical use doesn't just mean, hey, if we got, you know, 39 states that have some form of legal cannabis, and you know a lot of those have medical and doctors are actually recommending it. And there are people who have anecdotal evidence that it works and like, yeah, all that's true, all that's absolutely true. It doesn't necessarily meet the mark of accepted medical use when you look at the kind of regulatory definition of what that is supposed to mean and what criteria are supposed to be met there.

Speaker 3: 18:37

Right, and there are, you know there are various definitions and criteria that come into play.

Speaker 3: 18:43

There's a, you know, definition of what constitutes a drug under the Food, drug and Cosmetic Act. Then there is a criteria for what would get approved as a new drug by the FDA, and then there's also a criteria for rescheduling, right, and what kind of makes makes sense from there and the. The criteria for what is required for rescheduling and what's required for a new drug approval are pretty closely related. Right, and we already know that cannabis you know, whole plant cannabis would not make it through the NDA process at the FDA, right, like they're not going to approve something that is, you know, rolled and smoked? They are not going to. You know, there are a number of issues with cannabis being just variable, right Like? We have so many different cultivars of cannabis, they all have different cannabinoid and terpene profiles, and so there is no standard right, and so there are a number of reasons why, you know, the FDA is not likely to make a finding of accepted medical use, notwithstanding the fact that we have so much reform with respect to medical cannabis at the state level.

Speaker 2: 20:00

Could we take a quick tangent? Sorry, I just need to get this answer from my brain. So I I made a lot of conversations lately about like converted cannabinoids and this is largely coming out of the hemp space and we see states kind of like banning certain cannabinoids and doing what I feel is a little bit misdirected. And so if this does go into schedule three and pharma companies do start to get involved, they're like Converted cannabinoids have a strong chance of becoming a norm. Would that be right? Because if we get it down to a science, so to speak, and we are able to remove all the solvents and any catalysts that are used in that process, that would be the natural way for at least the medical side to go, because that's what pyromanic companies are comfortable with. Does that sound logical?

Speaker 3: 20:53

Well, I mean so. The vast majority of converted cannabinoids that we're seeing now are coming from hemp, and hemp is already descheduled, and hemp cannabinoids are descheduled in the 2018 Farm Bill. But, that being said, right now we have cannabis drugs that are approved by the FDA, that are derived from the cannabis plant, and so you don't necessarily need to have rescheduling to have the development of those drugs, but it makes it much, much easier With Schedule 3, I think it doesn't overcome the fact that, again, the underlying plant source is not standardized, and so you may be able to make it through the NDA process using converted cannabinoids for single molecule drugs, but they're not going to be whole plant products. It's not going to be an extract that you can get, like you can now, at a dispensary, no matter how purified it is. It's going to be in a drug formulation, so it's going to be a completely different category of product if pharmaceutical companies decide to pursue it that way.

Speaker 2: 22:23

Yeah, interesting that makes sense.

Speaker 1: 22:25

That does make sense and that is very hot on everybody's mind, especially in late of some news that came out of New York yesterday. But while I love your tangent, Ben, I do want to take us back to our topic.

Speaker 2: 22:40

Although it's related.

Speaker 1: 22:43

I hear you, kershid, that there's a lot of reasons to be very skeptical of the success of this process, and one of the things that Ben and I like to hold true as part of High Spirits is sort of an air of positivity and optimism about the future of cannabis and about change.

Speaker 1: 23:02

And if we were to just play this out, because there are so many people that are making a big guess that this is going to happen, I think that I'm wondering. Talk to us about if Schedule III happens and we were suddenly through the process with FDA and DEA and it was the end of 2024 and everything was closed up. Even though that seems highly unlikely based on what you just said, what happens to the state programs that are in place and the 10,000 businesses that are out there with state cannabis licenses and the 400,000 people that work in the space today? Do those businesses get to state licensed? Are they all of a sudden forced into a new pipeline and a new program? Does a federal licensing program come out of this rescheduling program? Kind of give us that overview for those that are operating today.

Speaker 3: 24:01

There isn't really a process, a federal regulatory and licensing structure waiting for us at the end of rescheduling. That would be work that we have to do through Congress to make that happen. My fear with rescheduling is that as soon as we move from Schedule I down to Schedule III, even arguably Schedule II, the DEA is no longer the primary enforcement agency. Historically, what we have seen is that the FDA has stayed out of enforcing any laws, including the FDCA the Food, drug and Customs Act against Schedule I substances. They defer to the DEA on that, even though the FDCA applies. Now it doesn't matter that cannabis is Schedule I. The FDCA still applies, but the FDA has not enforced the FDCA against state licensed cannabis companies because it's still within the DEA's purview. What happens when you move to Schedule III? Well then, the FDA has a much freer hand. They no longer really have to defer to the DEA on enforcement. The DEA, for its part, has other Schedule I substances that they are going to focus on. Some of them are going to take the foot off the gas, potentially to the extent that they have it on the pedal. Now they're going to take that foot off. The FDA is going to step in. Why is the FDA going to step in? Because the whole plant cannabis products easily meet the definition of what constitutes a drug under the Food, drug and Cosmetic Act.

Speaker 3: 26:02

Anytime you make an explicit or implicit claim about the ability of cannabis to affect the body in any way, or especially to cure any kind of disease or malady, you are making a drug claim. That puts you within the crosshairs of the FDA. Once you make a drug claim, that substance is deemed a drug and deemed as something that must go through the new drug approval process at the FDA in order to be marketable. Until then, if you are producing that kind of a cannabis product, a medical cannabis product, you are basically confined to intrastate markets.

Speaker 3: 26:52

The FDA could also shut that down by looking at the way certain products are made. If there are ingredients that travel, even inactive ingredients that travel in interstate commerce to make up your cannabis brownie, for example, you got your flower from another state that could implicate FDA authority. The fact that something is adult use and not medical also may not matter, because the FDA could say well, everyone is buying cannabis because they know it can alleviate their anxiety, they know it can help them sleep, they know it can help them eat. That is the intention of any manufacturer of adult use from medicinal who is putting this product into commerce. As soon as that product hits interstate commerce, the FDA has authority to basically start enforcing and to do things like send warning letters to manufacturers who will either comply or will pick a fight with the FDA, which has not really happened when you look at all the FDA enforcement letters that have gone out to hemp.

Speaker 1: 28:09

They have sent letters to some companies for making claims on their labels. This sounds very tenuous. This sounds like holy crap. What happened? Schedule three? All of a sudden, this new world and all of these products and businesses are all of a sudden out of compliance in a pretty serious way, in a way that they aren't today. They're out of compliance in a different way today. How does a business think about planning for this future, or should they at all?

Speaker 3: 28:54

Well, I think you know, if I were an operator, I would be jumping into this debate with a demand for some carve-out from the FDCA, right, I think that is you know. Others in the past have suggested that we create a different schedule for cannabis, that we distinguish it from other schedule substances under the CSA. My, what I argue is that we basically need to carve out the definition. We need to carve out whole plant cannabis products from the definition of what constitutes a drug under the FDCA. And if we do that, then we get out from under all of the various criminal prescriptions that we have, criminal prohibitions that we have on interstate commerce in those cannabis products. Right, if we say, hey, a whole plant cannabis product is not a drug within the meeting of the FDCA, that solves a lot of issues for us. Right, and frankly, we need to do that now, regardless of whether we reschedule or deschedule. Right, this problem is still there. Even if we deschedule, even if we got our heart's desire and we saw cannabis descheduled on the federal level, that problem is still there. We still have to deal with it. And so, the sooner we start talking about it and creating legislation and creating proposals that we can take to our lawmakers and say, hey, you know, if we do rescheduling, let's also include this carve out, because we need this breathing space in this market where states are already acting to kind of sort all this out.

Speaker 3: 30:38

Right, it's not appropriate for FDCA to be the sole regulatory authority over a whole plant cannabis product, especially when we have the state infrastructure already set up and we have regulators who are also coordinating with each other to figure out what's a good, uniform standard in law to apply around these products. Right, they're already doing that work. Let's let them do that work. Let's not have the FDA step in now in this vacuum and start sending out warning letters, start spooking small operators who, you know, rather than fight, they may just choose to go out of business, right? They, you know. Or their investors may bail, right, if they see something like that. So you know, they can do immense damage just by a warning letter, you know, let alone forcing folks to go through the NDA process, which can literally cost hundreds of millions of dollars and take years and years and years. Right, like it's just not a viable solution to get these products to market. That's not how it's going to happen if we expect our existing industry to survive.

Speaker 2: 31:49

Yeah, krishit, can I go back to something that you said about creating a new schedule Like this is something that came into my purview just very recently. It was like this proposal for schedule six. Can you shed a little bit of light on that? I have, like, what would it take, is it an available strategy, like to get a scheduled specific for cannabis?

Speaker 3: 32:13

I mean, I do see the need for it and we, you know we have. For example, you know, tobacco and alcohol are not scheduled. Cannabis is scheduled, you know you would argue that they should be, but they're not. They have independent pathways federally. And it makes sense to have whole plant cannabis, you know, have a separate pathway for it, right? But again, like, implicit in that new schedule is the argument that, well, this would somehow not be within the purview of the FDA because it wouldn't be a drug, right? So it's not dissimilar to arguing for a carve out from the definition of drug.

Speaker 3: 32:57

You know, one difference could be that, for example, the FDA can take action on its own to say, hey, we are not going to, you know, under our regs we are going to assume that this carve out exists, or we're going to grant this carve out explicitly. Even better, right, they can do that as an agency, whereas I don't think that they could add a new schedule altogether without going through Congress. I, you know, I don't think that that is possible. So, you know, there's a greater likelihood that we can get some movement, even if it's just at the agency level. Right, getting a commitment that they are not going to enforce and they're not going to treat whole plant cannabis as a drug, would be huge.

Speaker 3: 33:47

You know, what's even better is actually getting it in legislation right, having it have the force of law, because we have this with the. You know the Thinsen guidelines, the Cole memo, the Ogden memo. You know those were all agency guidance right, and in the case of the Cole memo is rescinded. So you know the government give it and the government take it away. And so you know that's why we need something in statute passed by Congress to say this is not a drug Right.

Speaker 1: 34:18

So it sounds like and you certainly have a seated table as chair at NCIA and all of this policy work that you've been doing, it sounds like.

Speaker 3: 34:30

Our chair is Chris Crane, who is a mentor.

Speaker 1: 34:33

Yes, chair of heritage, it sounds even more important.

Speaker 2: 34:38

He was chair for like a year for a couple years.

Speaker 3: 34:46

I chair of heritage is just Latin for fat Elvis.

Speaker 1: 34:50

Okay, well, I'll call you fat Elvis from now on.

Speaker 2: 34:52

And.

Speaker 1: 34:53

I think you know. My question is you said you said what Paul Armentano's prediction at normal is, which is that this is basically dead in the water. What is your prediction of what happens next?

Speaker 3: 35:09

I mean, it's hard for me to argue with Paul's conclusions. You know, I think we're all kind of now in a wait and see mode, like the fact that Secretary Becerra promised that there would be an outcome, a recommendation by HHS by the end of the year. That in and of itself is, you know, that's a huge promise, right, because again, that process itself takes a couple of years usually, and so we'll see. You know, if we actually have a recommendation or if we, if they punt into next year, which you know I think is probably more likely than not, you know, but that gets into kind of reading tea leaves right, to see whether they're gonna meet the more important. It'd be super interesting, I mean, if they do come out with a recommendation and they do find accepted medical use, which I'm not sure is likely but if they do find accepted medical use and they recommend rescheduling, you know, in that case it is more likely than not that the DEA will adopt that recommendation. Right, again, they may throw up roadblocks based on international law and other kind of specious arguments that you know aren't really valid, but they'll raise them anyway, you know, to knock it down right, and so that's also a possibility, but it's hard to see again that this is going to lead somewhere in the short term. I just don't see it happening on as expedited apaces.

Speaker 3: 36:51

Some of the rescheduling advocates say I would love to have that tax relief though, and I would love our businesses to have that tax relief. No doubt right, and so, like I'm not, I am definitely not arguing that schedule one is somehow better than schedule three. I'm not arguing, you know, that the criminal penalties would be lessened under the CSA If we move there. I'm not saying any of that stuff. I'm just saying if we're going to do this, let's be prepared. Let's ensure that we are taking steps to maximize the benefit of that move and minimize the potential threat to our existing industry and to our state licensed regulatory infrastructure right.

Speaker 1: 37:34

And it sounds like schedule three does not. It really presents a tremendous amount of risks, aside from the 280E benefit. All of the issues that you brought up related to FDA and interest rate commerce. I mean, I really loved this idea that you're talking about with the carve out. I know that Secretary Becerra. You know he comes from Los Angeles. He is not a stranger to the cannabis industry and certainly like growing up in LA. It's not like he's never met someone that is a cannabis consumer. This is someone that is a potential ally in this process. For us, like, how reasonable is it to be optimistic that by the end of the year we might get a recommendation that, whether it's schedule three or not, create some type of recommendation for a carve out for the industry and protects all of the entrepreneurs and the businesses that have put themselves out there today?

Speaker 3: 38:35

Yeah, I mean to be honest, I don't know whether this is even on their radar the way that the initial paper that I did came about. The paper is called Cannabis Cannibalism, and cannabis cannibalism being kind of forsaking all the work that we did for short-term profits and kind of cannibalizing the movement in the process. That paper was created at the request of NCIA's government relations team, who were approached by congressional allies, members of Congress, who said, hey, we're gonna be talking to the FDA about this rescheduling issue and what should we know from an industry perspective? Right, so I do know that this paper has made the rounds internally in Congress amongst NCIA's allies and potentially may have been passed on to the FDA, but I don't really know whether that is the case or not. I have to believe that they are following the industry debate on this closely and that they are aware of this issue. This is not a new issue, right? So like I found something that was brand new and like I'm going around like Paul Revere talking about the FDA is coming in, yet that's not. This problem has been here, right, and other folks before me have noted this issue, right, folks like John Hudak, who was at the Brickings Institute for many years now is the main, the regulator, cannabis regulator in the state of Maine, a number of the other authorities that I cite in my paper. This is not new, right? We all was new that the FDCA applied, right, and so I wanna believe that it's on the FDA's radar. They understand like, hey, this could be the implication and that, if they are, I hear from rescheduling advocates oh, the FDA is not interested, they don't wanna enforce this, they have better things to do. They're not gonna do this, right, and so this is all much to do about nothing. Okay, great, then just haven't put it in writing. Haven't put it in writing, please? That should be no problem then. Right, and that kind of belies the history of what's actually happened.

Speaker 3: 41:11

Like, when you look at the way the FDA has treated hemp products and hemp cannabinoids before the 2014 Farm Bill and then after the 2018 Farm Bill, you see a big distinction. Right, in the early 2000s, the DEA wanted to ban all hemp food products from the US because they contained trace amounts of THC, right, and then they said, hey, this is not food, this is a Schedule I substance. Right, we don't treat this any differently than THC and so we're gonna shut all this down. Right Courts Ninth Circuit said no, you're not. That's not how the CSA works and you have to actually schedule hemp if you're going to make this move right. Interestingly, the FDA at that point did not intervene in that and say, hey, this is actually a food product regulated by the FDCA, and so we have something to say about this too. Right, they didn't right, because the DEA said this is Schedule I. They stayed out Fast forward.

Speaker 3: 42:16

Now let's look at kind of what's happened since 2018, right, we've obviously seen all of the CBD warning letters, right, saying hey, you are making drug claims about your CBD product and so it's a drug and it's you know. You're violating the law and the FDCA and X, y and Z ways by doing so. We've also seen the FDA recently send warning letters to folks who are making D8 products from hemp. Right, and there was a letter that went out to from the DEA to the Alabama Board of Pharmacy. You know the Alabama Board of Pharmacy had asked like so what's up with these D8 products from hemp? Are they illegal or not? And the DEA said well, it's derived from hemp and it's really hemp and it's, you know, meaning it met the 0.3% THC threshold or lower threshold, then you know it's fair game. Then everything you know after that, including D8, is not Schedule I. But if it's synthetically made. Or if it's derived from marijuana, same damn plant. But if it's derived from marijuana then it's Schedule I, right.

Speaker 3: 43:37

And so the FDA a few months later then said started sending out letters to hemp-derived D8 products that were no longer Schedule I but were making medical claims and saying, hey, you can't do this, you cannot be selling this product in interstate commerce. This is a drug. You need NDA. This is, you know, there's. If it's not a drug, there's a food additive and it's, you know, not proved on those grounds Can't be a dietary supplement, because we already have drugs, you know, that are using THC in their formula. You know a whole panoply of reasons why you can't do this.

Speaker 3: 44:17

And so that's the future, right. As soon as we see cannabis moved off of Schedule I, you're going to see a more assertive FDA, if nothing else because of the public outcry, right, there are products that are people who are counterfeiting candy bars and Oreos and Cheetos and all sorts of other products that kids love and adults love, and you know they're infusing them with D8, g10, in some cases you know G9 as well, right, and playing with dosages and playing with thresholds and say, oh well, this 20 milligram, you know THC bag of gummies like this, totally compliant, because you know everything. You know it meets the 0.3% definition in this in this following way by weight, right Like by weight, these gummies weigh this much and there's not you know that much THC in them. It's under the 0.3 level. And so meanwhile you're given 20 grams of 20 milligrams of THC to, you know, potentially somebody who's a minor walking into a gas station.

Speaker 2: 45:24

Yeah, so, kershid, a lot of this, I presume, is why for a long time, especially from NCIA's lens, is that it was kind of de-scheduled or bust and there's been a lot of hope and this was included with the legislation proposed by Nancy Mace the young Republican you know, was that last year? I'm losing track of years now, but it was.

Speaker 2: 45:49

The State Reform Act. Yeah, like in you know, oversight from TTV versus FDA was like the big dream for some of us as operators Going to Schedule 3, having purview of the FDA. Is that potentially locking us into FDA oversight, where moving it to TTV later on is potentially even a bigger hurdle?

Speaker 3: 46:21

I think once we move into Schedule 3 and then you have large MSOs, you have pharma companies who know how to navigate the FDA, once you say, hey, this is Schedule 3 and maybe this is just a pause and we'll go on to de-scheduling, you're giving a lot of folks a vested interest in maintaining that Schedule 3 process.

Speaker 3: 46:47

These people have us outgunned and have had us outgunned what the cannabis industry spends on lobbying and what the pharma industry spends on lobbying. Pharma has exponentially more resources, almost zeroes in their checks, a lot more. It's going to be very hard to battle that if they decide, hey, we like it as Schedule 3 and we don't think we actually should be moving to de-scheduling because site any number of reasons right, but really profit motive, it's going to be very difficult if they start to then lobby against de-scheduling and maintaining Schedule 3. There is an argument for, hey, once we make that move, you are putting forces into play that are going to be very hard to repel it really makes it hard to answer the question of is this all good or bad?

Speaker 1: 47:52

I've learned so much from you today that helps me to understand that there really is good and there really is bad on both sides of this.

Speaker 2: 48:01

It's a high level. It sounds like this is super important.

Speaker 3: 48:04

I'm not opposed to rescheduling at all as long as we have this safeguard in place.

Speaker 1: 48:10

Yeah, the safeguard is everything, and the reality also that seems really clear is that none of this is happening very fast, and so for anyone to be including the removal of 280E in their short term financial projections, don't do it.

Speaker 2: 48:32

This is going to create a whole other wave of exuberance and then another crash. So it's like everyone just get ready for another wave, because there's going to be a bunch of dumb capital that comes into the space. I'm going to be on some free scheduling.

Speaker 3: 48:43

If you look at the folks who are doing technical analysis on cannabis stocks, this is a big piece of fundamental data that they are factoring in and saying well, if this happens, profits will shoot through the roof.

Speaker 1: 49:06

Well, so I think that we could talk all day. This is an incredible conversation. We thank you so much, and I think we're going to have to move towards wrap. So we're going to move to our last call section, which is our ending of the show, where we give you, kershid, our guest, an opportunity to make a lasting impression, whatever you want to say, your call to action, a plug for something you're working on. So, kershid, why don't you give us your last call?

Speaker 3: 49:35

My last call would be whether cannabis is rescheduled or descheduled, we need to deal with the FDCA issues. That is a critical need that we have and we need to be sober about this and not get too excited about the prospects of rescheduling before we recognize that there are some real issues that need to be resolved so that we can actually get the full benefit of this change and have the entire industry feel that benefit. So that would be my call to action is advocate for this carve out and to be prepared for what's coming in the future before we jump into rescheduling, or even rescheduling for that matter.

Speaker 2: 50:20

Awesome, I'm going to follow up on that really quick. So, anna Rae, if you want to do a last call, you can follow up with me. But I'm going to double down on what Kershid said and encourage anyone listening to this. I will say broadly get involved, join an organization, do some, join NCIA. Yeah, I'm just like, unabashedly. You have two board members here. But, seriously, we've been talking about this carve out for months now, ever since lobby days where we were on the hill together. We need help Transparently. The ups and downs of this industry is what we've all been feeling over the last year. It's been really easy for people to cut organizations from their budget, but we as an industry need to pull together and we need to push this initiative forward. So, yes, you see us up there fighting for safe banking. That's been a long slog, but this carve out is so important and if you're not contributing to it you're long for the ride, but we need as much help as we can get. So that's my addition to Kershid's last call.

Speaker 1: 51:33

Thanks, ben. And as we wrap up, remember the dialogue doesn't have to end here. We invite everybody to continue these conversations with each other, with your colleagues, and we want to hear your thoughts and reflections. Who do you want to see on the show? What topics do you want to have us cover? And truly, we are immensely grateful to you. Our audience, your support and excitement about this content encourages us to keep bringing you these thought-provoking conversations. So, if you've enjoyed this episode, please like and subscribe. Share high spirits with your friends, your colleagues.

Speaker 2: 52:13

Oh no, her audio cut out and I'm just gonna pick it up for her. So, as we send you off, remember to always stay curious, stay informed and, most importantly, keep your spirits high.

Speaker 3: 52:24

Until next time.

Speaker 1: 52:53

Bye.