EXPLAINER-How US marijuana reclassification could help cannabis companies

(Updates dateline, recasts headline and story text with Trump signing an executive order, adds company comments in paragraphs 16 and 17) Dec 18 (Reuters) - U.S. President Donald Trump signed an executive order recommending the loosening of federal regulations on marijuana to reclassify it as a less dangerous drug. Trump’s order directs his attorney general to quickly move ahead with reclassifying marijuana, according to senior administration officials, a process that could lead to the psychoactive plant being listed alongside common painkillers, ketamine and testosterone as a less dangerous drug. A reclassification, possibly the biggest policy shift in marijuana regulation since 1970, would likely reshape the pot industry by lowering tax burdens and making it easier for firms to secure funding, as well as help accelerate clinical research. Cannabis linked companies such as Canopy Growth (WEED.TO) , (CGC.O) , Organigram Global (OGI.TO) , SNDL (SNDL.CD) , Aurora Cannabis (ACB.O) , Trulieve Cannabis (TRUL.CD) and Tilray Brands (TLRY.O) are likely to benefit from this move. Here is what such a move could mean for companies. WHAT DOES RECLASSIFYING ENTAIL? Under the U.S. Controlled Substances Act, marijuana is listed as a Schedule I substance, such as heroin, meaning it has a high potential for abuse and no current accepted medical use. Last year, the Biden administration asked the Department of Health and Human Services to review marijuana’s classification, and the agency recommended moving it to Schedule III, a category for substances with a moderate to low risk of physical or psychological dependence, such as steroids. The Drug Enforcement Administration must review the recommendation and decide on the reclassification. WHAT WOULD BE THE TAX IMPLICATIONS? One of the biggest benefits of a reclassification would be that cannabis firms would no longer be subject to Section 280E of the U.S. federal tax code. That provision prevents businesses dealing in Schedule I and II controlled substances from claiming tax credits and deductions for business expenses. WHAT HAPPENS TO THE INDUSTRY? A Class III classification could unlock banking access for pot producers, attract institutional investors, reduce taxes and spur mergers and acquisitions. Securing funding remains one of the biggest challenges for cannabis producers, as federal restrictions keep most banks and institutional investors out of the sector, forcing pot producers to turn to costly loans or alternative lenders. “It removes the stigma and regulatory red tape … which completely hampered our research … that stigma sort of kept the bigger pharma companies from looking at us as a legitimate pharmaceutical company,” said Ram Mukunda, CEO of IGC Pharma (IGC.A) , which is developing cannabinoid-based treatments, including one for Alzheimer’s. “It also kept the investors, the institutional investors, from looking at us as a legitimate biotech company … it (the reclassification) moves us from this area of restricted research to pharmaceutical mainstream,” Mukunda added. Congress has also been debating further action for some time. The Secure and Fair Enforcement Regulation Banking Act (SAFER) bill, introduced in 2023, would ensure that all businesses, including state-sanctioned cannabis businesses, have access to deposit accounts, insurance, and other financial services. WHAT COMES NEXT? TD Cowen analysts had said full legalization remains unlikely, citing a lack of meaningful support in Congress and limits on how far the Drug Enforcement Administration (DEA) can go through rescheduling alone. Some analysts, however, say a reclassification will not change much. Cannabis will remain federally illegal, interstate trade will not be allowed, and the silo system of each state deciding its own market rules will still apply, according to equity research firm Zuanic & Associates.