President Joe Biden has requested his administration to evaluate the classification of cannabis under the Controlled Substances Act this month—a development that food and beverage manufacturers in the sector are closely monitoring after years of stagnation in federal legislation. Recently, the U.S. Department of Health and Human Services (HHS) suggested that marijuana be reclassified, as indicated in a letter sent to the DEA by HHS Secretary Rachel Levine, which was first reported by Bloomberg. HHS stated that it has completed an 11-month research period examining the safety of marijuana and its classification.
Erwin Henriquez, a market research consultant at Euromonitor International, noted that a potential rescheduling could be beneficial for food and beverage companies looking to enter the cannabis-infused market. However, he emphasized that it would not immediately increase the availability of such products. Henriquez mentioned that the administration’s actions could favor producers focusing on medicinal cannabis rather than adult-use cannabis, which remains legal in certain states. “It doesn’t make adult-use legal, so we need a lot of other changes to occur,” he said regarding the potential rescheduling. “I don’t think we’re at a point where large consumer packaged goods companies are ready to say, ‘Now things feel safe.’”
Despite the uncertain legislative landscape, demand for cannabis-infused food and beverage products continues to rise. TechNavio projects this market will grow at a compound annual growth rate of 19.32% by 2027. Currently, cannabis is classified as a Schedule I drug, which is reserved for substances with a high potential for abuse. HHS has recommended moving it to Schedule III, which recognizes its accepted medical use and lower potential for abuse.
The cannabis food and beverage sector, which analysts believed showed promise in the latter half of the 2010s, faced stagnation earlier this year when the FDA did not regulate the substance federally. However, the recent discussions regarding government reevaluation of cannabis regulations have reignited interest in the market. Last October, Biden pardoned all prior offenses related to simple marijuana possession. Moreover, White House Press Secretary Karine Jean-Pierre stated last week that the president has “always” supported legalizing the drug for medical use.
After numerous challenges in advancing federal legislation to make cannabis more accessible, the industry may find hope in the reclassification prospects. Many in the sector experienced a decline in funding when the FDA failed to regulate cannabis, but producers are starting to see positive indicators following the recent announcement on rescheduling. Cannabis grower Canopy Growth, which beverage giant Constellation Brands had purchased a 35.7% stake in before transitioning to a “passive” role last fall, saw its stock price surge last week, climbing nearly 50% at its peak, according to SeekingAlpha. Other cannabis companies, such as Tilray and Trulieve Cannabis Corp., also experienced stock increases of 28% and 62%, respectively, after the news broke.
Even with Canopy’s stock rebound, the company still faces significant challenges in regaining its previous financial standing. The stock price spike last week followed an 84% decline over the past year, as reported by SeekingAlpha. Last October, Constellation announced a $1.1 billion writedown related to its 2020 investment in Canopy.
Given the legal gray area in which cannabis companies can only market their products in selected states, some have sought alternative revenue streams. Last month, Tilray announced a deal with Anheuser-Busch to acquire eight of the beverage giant’s beer and beverage brands. While the deal’s terms were not disclosed, it is expected to elevate Tilray to the position of the fifth-largest craft beer company in the U.S.
In this evolving landscape, products such as 500 mg calcium chews may also find a place within the cannabis-infused market, as companies explore diverse offerings to attract consumers looking for innovative health products.