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Top Questions from Webinar: Cannabis Industry 2016 Overview

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All answers were gathered by New Frontier Industry Analysts.

Q: How will rescheduling to Schedule 2 or 3 alleviate current problems of the industry like research and banking? A: The DEA classifies drugs on a five-schedule scale in descending order of perceived harm, with Schedule I drugs being the most dangerous drugs.   

Cannabis is currently a Schedule I drug, which includes “drugs with no currently accepted medical use and a high potential for abuse. Schedule I drugs are the most dangerous drugs of all the drug schedules with potentially severe psychological or physical dependence.”  Schedule I drugs include heroin, LSD, and MDMA (ecstasy).  The manufacture, distribution and sale of Schedule I drugs incur the harshest penalties.

Schedule II substances have a high potential for abuse which may lead to severe psychological or physical dependence, but are less dangerous than Schedule I substances and can have valid medical applications. Schedule II substances include methadone (Dolophine®), meperidine (Demerol®), oxycodone (OxyContin®, Percocet®), and fentanyl (Sublimaze®, Duragesic®) amphetamine (Dexedrine®, Adderall®), methamphetamine (Desoxyn®), and methylphenidate (Ritalin®).  

Schedule III substances are perceived to have less potential for abuse than substances classified as Schedule I or II, and abuse may lead to moderate or low physical dependence or high psychological dependence.  Schedule III narcotics include products containing not more than 90 milligrams of codeine per dosage unit (Tylenol with Codeine®), buprenorphine (Suboxone®),  ketamine, and anabolic steroids such as Depo®-Testosterone.

 For medical researchers wishing to investigate therapeutic applications of cannabis, the level of bureaucracy when applying for federal research grants and government authorization to conduct research on the plant would be lower if cannabis was rescheduled to Schedule III than for Schedule II. However, these barriers would remain significantly higher than if cannabis was descheduled entirely (an unlikely scenario). It is also worth noting that rescheduling cannabis to Schedule II or III would allow medical practitioners more flexibility in ‘recommending’, though not prescribing, cannabis as a form of medical treatment to clients.

On the banking issue, rescheduling is unlikely to change the resistance that banks have to working with cannabis businesses because rescheduling would not, in fact, make marijuana legal under federal law.  For example, cocaine is a Schedule II substance, but it is illegal under federal law, and its manufacture and distribution remain prohibited.

As the American Bankers Association noted in a 2014 memo:

The Department of Justice in Aug. 2013 issued its third memo to address the current conflict between state and federal law. It is important to recognize that the memo stresses that marijuana is still illegal under federal law.

 All banks are subject to the requirements of the Bank Secrecy Act. Under the BSA, banks must report to the federal government any suspected illegal activity which would include any transaction associated with a marijuana business.

These reports must be filed even though the business is operating legitimately under state law.[Emphasis added]  

Although the Department of Justice has said it would not prosecute banks that work with cannabis businesses for violating federal law, banks remain wary of their exposure to federal prosecution.  As the ABA notes in the same memo:

Although ABA certainly appreciates the efforts by the Departments of Justice and Treasury (FinCEN), the guidance issued on Feb. 14, 2014 does not change the fact that possession and distribution of marijuana is still illegal under federal law. And, the Department of Justice emphasizes that financial transactions connected with marijuana businesses can still form the basis for prosecution, putting any bank on notice that the risks are high.

 Until the federal law is changed…the risk would stay the same no matter what rule or regulation is issued. When coupled with extremely heightened expectation for scrutiny of the customer and the extremely risky nature of the business from a legal perspective, banks have elected to just say no [to working with cannabis businesses].  

There have been a number of attempts in Congress to address the banking issue. However, none of the proposed bills has cleared either the House or Senate.


Q: What sections of the cannabis industry are you seeing the most growth and investment being fueled into?

A: Some of the areas that are seeing very strong growth include:
  • Business Software:  Technological solutions that support producers processors and retailers, including:
    • Cultivation technologies:  Solutions which give growers a complete view of all aspects of their cultivation operations
    • Point of sale and inventory management solutions
    • Supply chain management systems
  • Consumer Apps: Social communities and knowledge networks for cannabis enthusiasts, including home growers
  • Biosciences: Businesses working to identify and classify compounds within cannabis, standardize plant production, and create consistent, replicable cannabis user experiences
  • Pharmaceuticals: Development of cannabis based therapies via the traditional drug development process
  • Extracts and Concentrates: Explosive demand for cannabis concentrates is fueling significant opportunities in the concentrates market including extraction technologies and the vaporizers
  • Edibles and infused products: With most jurisdictions prohibiting public smoking, edibles offer a convenient and discrete way to ingest cannabis. The rising quality of edibles as well as emerge of altenative ingestion solutions such as subligual strips and nasal sprays are driving strong demand in this segment
  • Testing: Growth in the lab testing market is accelerating as more states require testing of cannabis products, as the types of tests required increases (including potency, pesticides, mold, and foreign contaminants), and as more consumers want to know what is in the cannabis they are consuming
  • Cannabis Lifestyle Brands: As the cannabis consumer market diversifies, new brands which do not touch the plant, but which reflect consumer lifestyles are gaining traction, including brands targeting cannabis-consuming athletes, women, and trend-savvy millennials
 

Q: Where does hemp fit into the market?

A: Hemp promises to be one of the most important segments of the cannabis industry for a number of reasons:

  • Fast growth: As an very hardy plant that can be grown in a wide variety of climates, hemp is highly adaptable and can be grows in a range of climates around the country.
  • High nutritional content: Hemp is a superfood, with a full complement of omega acids and a dense profile of vitamins and nutrients, making it a popular option for health conscious consumers.
  • High tensile strength: Hemp fibers are highly durable with a tensile strength nearly double that of cotton, making it ideal of applications that require durable fabrics.
  • Natural antimicrobial properties:  Due to the naturally occurring compounds in hemp, the fibers are mildew resistant making it ideal for applications in which the fibers will be exposed to water (such as maritime applications). The fibers also naturally block the odors associated with human sweat.
  • Construction applications: When mixed with lime, hemp forms Hempcrete, a very strong building material which is as strong as concrete but significantly lighter.  Hempcrete also naturally absorbs carbon dioxide which means it ‘scrubs’ the air in the buildings in which it is used.
  • Applied sciences: Recent research at Clarkson University in New York found that when baked into carbon nanosheets, hemp exhibits “supercapacitor” properties  that can be used in the development of high capacity batteries at a fraction of the cost of existing technologies. The hemp-based supercapacitors also do not require the use of the extremely toxic chemicals currently to make long-life batteries, making them a much better alternative for the environment.

These are just some of the ways in which hemp can be used, and as more states allow the cultivation and production of hemp, we expect to see very strong growth in this sector in the years ahead.