May saw officials in the Drug Enforcement Administration make the first moves toward cannabis rescheduling.
As anticipation builds, companies are beginning to better position themselves for changing market dynamics, and one Canadian cannabis company is anticipating major acquisition deals to come out of the US.
Meanwhile, a major player in the US market narrowly avoided consequences related to their Nasdaq listing after an expected merger agreement was terminated, and a once luxury cannabis brand out of California became officially delisted after months of financial uncertainty. Keep reading to discover more about these industry-shaping events.
DEA submits proposal to reschedule cannabis
The US Department of Justice submitted a proposal to reschedule cannabis to the Federal Register on May 16, triggering a 60 day open comment period where the public can send in their comments before the rule change is finalized.
President Joe Biden shared the news via his account on X, formerly known as Twitter.
The DEA will conduct a comprehensive review of received submissions and will organize a hearing if formally requested. The process may take a few months or longer, depending on the comment period's outcome, and the DEA will issue a final ruling once it is complete. Reclassifying cannabis to a Schedule III substance, which encompasses drugs that can potentially be abused, but are safe for medical use, would open the door to opportunities to conduct more thorough research into the benefits of cannabis and its further possible uses. Under the proposed rule change, cannabis would still be subject to substantial regulation by both the DEA and the Food and Drug Administration.
Rescheduling cannabis would also remove the limitations of Section 280E of the Internal Revenue Service Code, which prevent legally operating cannabis businesses from deducting ordinary business expenses.
According to the MJBiz Factbook, the cannabis industry could potentially add US$112.4 billion to the US economy in 2024 and up to US$200 billion by 2030. These figures do not account for rescheduling or legalization, meaning that the total would likely be higher if either of these much-anticipated events were to occur.
While rescheduling would have positive effects on the cannabis industry, a recently proposed amendment to the Farm Bill has raised concerns. It seeks to federally ban all ingestible hemp products containing any level of THC, and market participants believe it could have a significant impact on the adjacent hemp industry.
Tilray Brands plans to raise US$250 million for US cannabis acquisitions
Tilray Brands (TSX:TLRY,NASDAQ:TLRY), one of Canada’s largest cannabis companies, plans to raise US$250 million to “fund strategic and accretive acquisitions or investments in business, including potential acquisition of assets in the US and internationally in order to capitalize on expected regulatory advancements or expansion opportunities.”
The company has partnered with TD Securities and Jefferies, allowing them to distribute up to US$250 million of its common stock via "at-the-market offerings" on the Nasdaq Global Select Market.
The timing and amount of these sales have not yet been determined, and sale prices will be determined by prevailing market prices at the time of sale. The company’s share price received a 39.55 percent boost after news that the DEA began proceedings to reschedule cannabis in the US on April 30.
MedMen Enterprises delisted from CSE
MedMen Enterprises, formerly one of the largest cannabis companies in the US, was delisted from the Canadian Securities Exchange (CSE) on May 15. The delisting came after MedMen failed to meet the CSE's continued listing requirements, which include maintaining a minimum market capitalization of US$40 million and a share price of at least US$0.05. The company filed for bankruptcy in Canada last month, and its LA-based subsidiary was placed in receivership.
The company has been struggling financially after taking on multiple loans between 2019 and 2022, followed by a terminated US$682 million merger agreement with PharmaCann in 2019. Lawsuits and lavish spending coupled with the downturn in the cannabis industry led to MedMen's eventual demise, and the company was US$400 million in debt at the time of its bankruptcy filing. Its delisting from the CSE is another significant setback for the company, as it will lose access to the CSE's capital markets and liquidity. The company has been selling off its assets since 2019, with the most recent sale being its Arizona operations to MINT Cannabis for an undisclosed amount in January.
Nature's Miracle/Agrify merger falls through
A planned merger between Nature’s Miracle Holding (NASDAQ:NMHI) and Agrify (NASDAQ:AGFY) was terminated after the companies cited “unfavorable market conditions." The announcement was made just four days after both companies expressed confidence in the need for consolidation within the cannabis industry.
Under the agreement, Nature's Miracle would have acquired LED lighting equipment worth US$750,000 from Agrify. Additionally, the company was to assume the debt owed by businesses controlled by Agrify CEO Raymond Chang, who would have become president of a new Agrify division of Nature’s Miracle.
The method of payment was not specified, but it involved a combination of cash and stocks. Both Nature's Miracle and Agrify saw their share prices fall after the news broke on May 20.
Agrify saw a saw a revenue decline in the first quarter of this year despite reporting a significant reduction in losses. The company also faced a challenge in November 2023, when it received a notification from the Nasdaq regarding non-compliance with a listing rule for shareholder equity. In response, Agrify announced a US$13.8 million debt-to-equity conversion on May 22 and received confirmation that it had regained compliance on May 28.
Ohio's adult-use cannabis market to open in June
On May 13, the Joint Committee on Agency Rule Review completed its review of regulations that would allow medical cannabis dispensaries in Ohio to serve recreational users, allowing the Division of Cannabis Control to file the final rules.
While dual licenses won't be mandatory in Ohio, medical cannabis dispensaries that want to sell to recreational customers will need to apply for one. MJBizDaily states that Curaleaf Holdings (OTCQX:CURLF,TSX:CURA) is expected to apply when applications become available by June 7, as are Cresco Labs (OTCQX:CRLBF), PharmaCann and the Cannabist Company (OTCQX:CBSTF). Provisional permits are set to be issued by September 7.
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Securities Disclosure: I, Meagen Seatter, hold no direct investment interest in any company mentioned in this article.