On Oct. 6, 2022, President Joe Biden issued a statement granting pardons to federal non-violent possessors of cannabis and asking the Secretary of Health and Human Services to analyze cannabis’s status as a Schedule One Drug under the Controlled Substances Act.
The Controlled Substances Act is a federal law that places certain categories of substances onto schedules based on the substance’s medical use, potential for abuse and safety or dependence liability. Schedule One includes drugs that have a high capacity for addiction, such as heroin and LSD. It also includes cannabis, a drug that studies have shown to not only NOT be highly addictive but has been recognized by more than 40 states to have medical benefit. In fact, studies have shown that cannabis has a lower addiction level than Tylenol. Conversely, Cocaine, a highly addictive substance, is Schedule 2.
While Biden’s statement on cannabis was encouraging to many in the industry who have been waiting for federal movement on the issue of legality for decades, it may be more of a distraction than anything else. Rescheduling cannabis to anything higher than Schedule 3 does nothing to alleviate the pressures the industry is currently under.
Industry players will still not be free from Internal Revenue Service policy 280(e), a policy that prevents businesses from deducting any business expenses other than cost of goods sold. They will also not have access to banking or capital markets. Cannabis is a capital intensive business. Without capital, companies will not grow and many will fail.
But what about convenience stores? While the statement wasn’t a boon to the cannabis industry, it may present some real opportunities to convenience stores and other over-the-counter pharmacy like distributors.
In many states, Delta 8 and Delta 9 THC are readily available to the public at convenience stores and gas stations. This is due to a loophole in the 2018 Farm Bill that has not been fixed. With Biden directing the Secretary of Health and Human Services to look at cannabis, it is unlikely that reviewing the Farm Bill loophole will occur in the near future.
What is the loophole? Under the 2018 Farm Bill, cannabis products derived from Hemp are fully legal to sell and use providing those products do not contain more than .3% of Delta 9 THC. Delta 9 THC is the psychoactive portion of the cannabis plant.
Delta 8 THC, a cannabinoid created by extracting it out of Hemp, has also been found to have a psychoactive effect, but it is not prohibited from sale by the Farm Bill. In addition to Delta 8 not being covered by the Farm Bill, there is also an opportunity for Delta 9 THC sales to be made in the mainstream markets because the application of the .3% rule is based on the dry weight of the product.
That means as long as the THC content is no more than .3% of the weight of the whole product, it’s legal. For example, if you were a producer and you were making gummies weighing in at five grams (5,000 milligrams), that gummy could legally contain up to 15 milligrams of hemp-derived Delta 9 THC. Fifteen milligrams of THC is higher than many state limits on cannabis edibles, but they are legal to be sold in convenience stores.
A gummy weighing in at 10 grams would allow for 30 milligrams of Delta-9 THC. Because Delta 8 and 9 producers aren’t subject to the same taxes as the cannabis industry, don’t have to chase down shelf space inside of state-licensed dispensaries, and aren’t required to test their products or have a state-issued license to produce the products, Delta8 and 9 products tend to be more inexpensive.
This creates a real opportunity for convenience stores to compete directly with state cannabis businesses with none of the overhead required by the cannabis industry.
Choosing to place Delta 8 THC and Delta 9 THC products on your shelves isn’t without risk. If the Food and Drug Administration (FDA), despite also looking into the rescheduling of cannabis overall, decides to work to amend the Farm Bill to close this loophole, the federal governments could potentially come in and begin to prosecute stores selling Hemp-Derived Delta 8 THC or Delta 9 THC.
In the meantime, however, there is an opportunity for convenience stores to be part of the green wave and start selling cannabis.
Leah Heise is a Constellation Advisor to global strategy and management consultancy Kearney. She can be reached at [email protected].