Challenging the Status Quo: Legal Experts Argue for Marijuana Rescheduling Under International Treaties
The legal opinion from lawyers at Porter Wright LLP and Vicente LLP challenges the Drug Enforcement Administration's (DEA) stance that international drug treaties prevent the United States from rescheduling marijuana to Schedule III of the Controlled Substances Act (CSA). This opinion, commissioned by the Coalition for Cannabis Scheduling Reform, argues that rescheduling marijuana to Schedule III would not only comply with international treaties but would also better serve public health and safety. It refutes the DEA's 2016 assertion that treaty obligations limit marijuana to Schedule I or II. They contend that moving marijuana to Schedule III of the CSA, as recommended by the Department of Health and Human Services (HHS), would not only be permissible under current international treaties but would also align more closely with the objectives of these agreements to protect public health and safety.
Their argument is structured around several key points:
- Flexibility of International Drug Treaties: The lawyers argue that international drug treaties provide sufficient flexibility for countries to adjust their domestic drug policies based on new scientific and medical evidence. This flexibility is crucial for allowing nations to address their unique public health and safety needs while still adhering to the broader goals of the treaties.
- Precedents Set by Other Countries: The opinion notes that countries like Canada and Uruguay have legalized and regulated marijuana without facing international repercussions, suggesting that the treaties allow for a certain degree of sovereignty in drug policy. These examples are used to support the argument that rescheduling marijuana to Schedule III in the U.S. would not violate international obligations.
- DEA Precedents and Regulatory Flexibility: The lawyers point to the DEA's previous decisions, such as the rescheduling of Epidiolex (a CBD-based medication) and the descheduling of hemp and its derivatives following the 2018 Farm Bill, as evidence that the agency has the authority and precedent to move marijuana to Schedule III. These actions demonstrate the DEA's ability to adapt its scheduling decisions in response to new evidence and regulatory frameworks.
- Alignment with Treaty Goals and Public Health Objectives: Moving marijuana to Schedule III is argued to better serve the public health, safety, and welfare objectives of the international treaties by facilitating more regulated and researched use of cannabis. This position suggests that such a move would enhance, rather than diminish, the treaties' effectiveness in regulating drug use and protecting global health and safety.
- Constitutional and Domestic Legal Considerations: The opinion also touches on the interplay between international treaties and U.S. domestic law, highlighting that treaties should not compel member states to act in ways that violate their own constitutional frameworks. This is particularly relevant for the U.S., where state-level legalization of marijuana for medical and recreational use poses a challenge to strict adherence to treaty provisions regarding drug prohibition.
- Potential Legal Challenges and Advocacy Strategies: Finally, the lawyers suggest that if the DEA were to maintain that treaty obligations prevent rescheduling marijuana below Schedule II, this position could be challenged in federal court on both scientific and constitutional grounds. They emphasize the need for clear and proactive communication from the DEA as the rescheduling review process moves forward.
Industry Struggles Continue for Organigram in Q1
Canadian cannabis producer Organigram Holdings saw revenues fall 15.7% year-over-year in its fiscal first quarter of 2024. The company swung to an adjusted EBITDA loss of C0.1 million, compared to a positive C5.6 million last year. The declining top and bottom lines highlight the struggles that licensed producers continue to face in the still-maturing Canadian recreational market. Consumer trends towards value brands and pricing pressures have compressed margins industry-wide. Despite the tough quarter, Organigram maintains a healthy cash balance of C54.6 million to weather the storm. To restart growth, the company will look to new 2.0 products like edibles and vapes. Organigram's results echo the wider challenges in the Canadian landscape as LPs look towards derivatives, international markets, and eventual U.S. federal legalization to reignite the growth story for the cannabis sector.
Key Achievements:
- Strategic Investment from BAT: Organigram announced a 124.6 million strategic investment from British American Tobacco (BAT) in November 2023, which shareholders approved. The first tranche of this investment, amounting to 41.5 million at 3.22 per share, has been completed.
- Financial Performance: The company achieved positive Adjusted EBITDA and generated 7.7 million in positive cash flow from operations.
- Improved Margins: Adjusted gross margin improved significantly from 17% in the fourth quarter of fiscal 2023 to 31% in the first quarter of fiscal 2024.
- Market Position: Organigram maintained its #2 market position in Canada for the last five consecutive months as of the end of Q1 Fiscal 2024, leading in several product categories, including milled flower concentrates, and holding solid positions in edibles and pre-rolls.
Product Innovations and Strategic Moves:
- Organigram introduced 22 new SKUs in the quarter, highlighting its focus on innovation and consumer preferences.
- The company completed its first craft harvest at the Lac-Supérieur facility and initiated seed-based production through its strategic investment in US-based Phylos Bioscience Inc.
- Organigram is also working towards EU-GMP certification of its Moncton facility to expand its international reach.
Financial Results Overview:
- Net Revenue: There was a 16% decrease in net revenue to 36.5 million in Q1 Fiscal 2024, primarily due to a reduction in international revenue and medical sales.
- Cost of Sales: Cost of sales decreased to 26.9 million in Q1 Fiscal 2024, primarily due to lower sales and reduced cultivation and post-harvest costs.
- Gross Margin: The gross margin before fair value adjustments decreased to 9.5 million from 11.7 million in Q1 Fiscal 2023, impacted by lower net revenue.
- SG&A Expenses: Selling, general & administrative expenses increased slightly to 16.5 million in Q1 Fiscal 2024, mainly due to higher foreign exchange losses and professional fees related to the BAT investment.
- Liquidity and Capital Resources: As of December 31, 2023, Organigram had 54.6 million in cash, excluding the 41.5 million tranche from BAT's investment.
Strategic Investments and Partnerships:
- The partnership with BAT through a Product Development Collaboration focuses on developing innovative products in the edible, vape, and beverage categories.
- Organigram made strategic investments in Greentank Technologies Corp. and Phylos, enhancing its technology and genetics capabilities for future growth.
Future Outlook:
Organigram's CEO, Beena Goldenberg, expressed optimism about leveraging its strategic investments, market leadership, and R&D capabilities to expand its market reach within Canada and internationally. The strategic investment from BAT and advancements in product development and international expansion signal a strong start to fiscal 2024 for Organigram.
Polls Show Yes, Politicians Say No: The Divide on Medical Cannabis Legalization
What are the prospects for medical cannabis legalization in 2024 in the nine remaining states still prohibiting it: Idaho, Indiana, Kansas, Nebraska, North Carolina, South Carolina, Tennessee, Wisconsin, and Wyoming?
- Public opinion polls show strong majorities favoring medical cannabis legalization in all nine states, with support ranging from 67% to 86%. However, Republican-controlled legislatures have blocked reform efforts so far.
- Idaho, Nebraska, and Wyoming have citizen-led ballot initiative campaigns underway to put medical cannabis legalization before voters in November 2024. The other states do not allow ballot initiatives.
- In several states, including North Carolina, South Carolina, and Tennessee, medical cannabis bills have passed one legislative chamber only to stall in the other.
- Wisconsin Republicans unveiled a restrictive medical cannabis proposal in early 2024 after years of blocking Democratic legalization bills. But its prospects remain uncertain.
- Governors in Idaho, Indiana, Tennessee, and Wyoming oppose legalization or remain skeptical. Governors in other states have shown some openness depending on more research or federal reclassification of cannabis.
So, in summary, while public support exists, medical cannabis legalization faces challenging paths forward in most of the remaining prohibition states due to Republican legislative opposition and uncertain gubernatorial support. 2024 ballot initiatives and continued legislative efforts may spur breakthroughs in some states.
