Post Cannabis Rescheduling: What’s Next For Marijuana Giants? Potential $1.1B Cash Flow Boost From IRS 280E Removal
Following the recent move on the part of the DEA toward
reclassifying cannabis from Schedule I to Schedule III, Zuanic & Associates hosted discussions with industry leaders to assess the impact and outline the next steps. The comprehensive review indicates there could be significant regulatory moves and potential financial implications for the cannabis industry.
Regulatory Timeline And Expectations
The Biden Administration is proceeding cautiously with the rescheduling process, ensuring all legal protocols are observed. An expedited review by the Office of Management and Budget (OMB) is anticipated, possibly concluding in the coming days or weeks, contrary to the usual 90-day timeline.
This would be followed by a 60-day public comment period.
The final ruling, expected to be prepared for legal challenges, could be implemented before the upcoming November elections, enhancing its resilience against potential reversals by future administrations.
Industry Financial Outlook
The shift to Schedule III is poised to unlock substantial financial benefits for multi-state operators (MSOs).
Analysts project near-term financial outcomes could include approximately $1.1 billion in cash flow improvements across the sector due to the removal of tax burdens under the IRS’s 280e that disalows cannabis companies from deducting normal business expenses.
This represents significant potential for balance sheet strengthening and increased financial flexibility for cannabis businesses.
“We are long-term bullish. Just on the US market alone, we could justify valuations of >$110Bn by around 2030 assuming federal legalization and a much larger TAM (total addressable market) with an expanded wholesale market of $75Bb, 20% share, 25% EBITDA margins, 30x multiples). Right now, the two largest companies have …