This November, California voters are expected to pass Prop 64, the Adult Use of Marijuana Act, which will effectively make recreational pot use legal in the state. The policy shift could spawn a large and emergent market for marijuana tourism – a prospect that looks attractive to many, particularly given the states ongoing budgetary crises. While visions of sativa wine tasting and THC surf lessons may float through entrepreneurs’ heads, some cannabis businesses in the Los Angeles area say they will be largely unaffected by the legalization of recreational marijuana. According to these business owners, economic growth and meaningful development will still be largely inhibited so long as the federal Drug Enforcement Administration continues to categorize cannabis as Schedule I.
Heroin, LSD, and Ecstasy are the drugs with which a cannabis shares its Schedule I classification. Drugs in this category have been deemed to be highly addictive, and of no currently accepted medical use. Recently, there were rumors within the cannabis community that the DEA may be poised to reschedule cannabis to a less severe status this summer. These rumors were effectively squashed yesterday, when DEA chief Chuck Rosenberg officially announced that the agency would indeed continue to keep cannabis at its current classification, citing the fact that the FDA had not deemed marijuana as “safe and effective medicine,” as the reason for his decision.
Seth Yakatan is a Manhattan Beach-based pharmaceutical biotechnologist whose academic work in proving the medical benefit of the cannabis is being hampered by roadblocks set forth by the DEA. Yakatan is CEO of Kalytera Therapeutics, a biotech company that is developing synthetic versions of the CBD molecule to be used as treatment for bone issues like osteoporosis. The plant is a really mysterious and wonderful thing, says Yakatan, What were seeing is kind of an incredible amount of general medicinal value. Unlike existing osteoporosis drugs, the CBD-based molecules that Kalytera is developing do not only stop bone loss. They also appear to promote new bone growth, all without being toxic to the body, regardless of dose. Because Kalyteras molecule is a synthetic version of CBD, there is nothing federally illegal about it. The company is in the process attaining FDA approval, and will likely begin trials on humans in the middle of 2017.
While the drugs that Kalytera is developing are not subject to federal bans on cannabis, Yakatan believes that Schedule I categorization is severely inhibiting the growth of cannabis within the pharmaceutical sector because the academic community has almost no ability to research what he believes is a potentially highly beneficial – and largely misunderstood plant. Its impacting the whole industry, says Yakatan, the fact that you do not have the financial resources of the leading academic research institutions in the world – many of which are in the United States.
According to Yakatan, however, the medical fields current understanding of the plant is something akin to industrys grasp on cancer in the 1950s. Were really in the Dark Ages in terms of our knowledge of the plant, says Yakatan, If cannabis becomes legalized and rescheduled, what youll see is a lot of academic research dollars flow into a scientifically controlled study and analysis of (cannabis).
Cannabis-based pharmaceuticals differ from the products currently sold in dispensaries because they have been developed and refined in a specific way. Yakatan likened this distinction to taking a capsule of Bayer aspirin versus licking a leaf from an aspirin tree. There appears to be both promise and tremendous room for financial growth around the pharmacology of cannabis. In March of this year, the British biotech company GW Pharmaceuticals, which is developing cannabinoid-based products for the treatment of Multiple Sclerosis, saw its stock more than double.
In addition to impairing the development of possible pharmacological uses of cannabis, Schedule I classification is also greatly impeding the potential for business and tax revenue within California, says Aaron Herzberg, a partner at CalCann, a firm that invests in municipally licensed cannabis properties. This is primarily because per federal tax code 280 E, as long as cannabis is a Schedule I drug, business owners cannot write off any of their operating expenses except for the cost of the actual marijuana. If you were to follow 280 E religiously, ostensibly the tax burden is as high as 70-75 percent, says Herzberg.
According to Herzberg, steep tax burdens are one reason that many cannabis businesses within California operate unlicensed as cash-only establishments, a situation that has created a grey market within the state. Billions of revenue, then, says Herzberg, that could fulfill cannabiss promise of helping to aid the states faltering economy, are instead being funneled into this illicit market. Legalization of recreational cannabis is unlikely to have any real effect on legitimate small business owners ability to turn a profit, says Herzberg, until the plant is scheduled at III or higher, at which point purveyors would no longer be subject to code 280 E.
Im not optimistic that marijuana is going to save the states economy or anything like that, says Herzberg. Nor does he think anyone in their right mind, would assume the DEA will be rescheduling cannabis to III or higher any time soon. When I tell people Im in marijuana, they say That must be lucrative. I say, Maybe it will be someday, but its kind of a challenge right now, were at a crossroads. I think were one of the fastest growing industries in the country right now, but theres also a lot of risk.
Still, the potential passage of AUMA has led to a boon in investment interest, says Herzberg, Before, people perceived California marijuana as being very unregulated, a very Wild West situation. Now that regulations are being passed, and theres a ballot initiative in November, theres starting to be a frenzy.
Herzberg warns his investors, though, who buy in at the multi-million dollar level, and who also often sink funds into in fields like tech, that cannabis is not for those looking to turn a quick profit. You have to be very cautious. Its not for every Mom and Pop to invest in You have to be prepared to make a long term investment, he says.
News Moderator: Katelyn Baker
Full Article: Why Recreational Marijuana May Not Benefit Cannabis Businesses Until DEA Rescheduling
Author: Tess Barker
Contact: LA Weekly
Photo Credit: Timothy Norris
Website: LA Weekly
