Inside the DEA Hearings with Christian Bax

What really happened inside the DEA’s cannabis rescheduling hearings?

This week, Jesse Redmond and Morgan Paxhia are joined by Christian Bax, Senior Attorney at The Lockwood Law Firm, who attended the hearings from start to finish. Christian provides a firsthand look at the arguments presented by both supporters and opponents of Schedule III, what stood out inside the hearing room, and where the rescheduling process goes from here.

The conversation also explores what the hearings mean for cannabis operators, investors, and the broader industry as regulatory uncertainty continues.

Topics include:
• Why the DEA hearings were held and what they were meant to accomplish
• The strongest arguments from both sides
• Key moments and surprises from inside the hearing room
• What happens next in the rescheduling process
• What operators and investors should be watching going forward

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Transcript

SPEAKER_01 0:01

Welcome back to Higher Exchanges, number one independent cannabis investing show, where we break down complex cannabis markets into clear data actually used. Just Rit Morgan Pack.

SPEAKER_02 0:30

What is up, guys? We're back for you live listeners. We are five minutes late. I apologize for that. I am Jesse Redman, Chief Strategy Investor Relations Officer at Leaf Brands, and I'm back with the smartest cannabis investor I know. He's tan, he's grizzled, he's a veteran. He's Morgan Paxio. Morgan, how are you, man?

SPEAKER_03 0:48

I'm good. The tan definitely helps cover up the uh the grizzledness, right?

SPEAKER_02 0:52

So I know I just keep getting more and more grizzled.

SPEAKER_03 0:57

Yeah, no, I'm looking forward to the show today. Uh, I was just thinking as we were hearing the intro music, I was like, this today's show feels like uh especially on point. Yeah.

SPEAKER_02 1:09

Yeah, the uh rating suggests if you talk about political things and rescheduling, people like to hear about that stuff. And sometimes I get sick of it, man, but today it sure is topical. And I think we have a perfect guest for it. Christian Bax, welcome to the show, senior attorney at the Lockwood Law Firm. That sounds like the Ohio State University, but it's called the Lockwood Law Firm. Christian, welcome to the show. How are you, man?

SPEAKER_00 1:31

I'm doing very well. Thanks for having me, guys.

SPEAKER_02 1:34

Yeah, I was thrilled to see you for many reasons. One is that you showed up with a microphone. You look like you're a podcaster over there.

SPEAKER_00 1:39

Thank you. I want to make sure you guys have good, you know, you have good audio for your pod and for your audience.

SPEAKER_02 1:45

It is so helpful. Sometimes some of the guests that I love the most, I bang my head against the wall as they stare at their MacBook with bad sound and bad video, and you're showing up on on camera with a microphone. So, first step, very good. And uh nice to meet nice to meet you, Christian.

SPEAKER_00 2:00

Thank you.

SPEAKER_02 2:01

And so much to cover today. We have uh a packed agenda as we usually do, a ton of content. But before we jump into it, Morgan Paxia, we talked on the phone earlier this week about AI and cannabis, and we had a fun chat. Patrick on your team is doing some cool work over there. Before we get into it, do you care to tell me about how it is impacting dispensaries and how FlowHub might be able to help folks?

SPEAKER_03 2:24

You got it. Well, AI is changing how cannabis retailers operate. FlowHub recently launched FlowHub MCP, a new AI connector that lets you run your dispensary by talking to AI. Instead of clicking through reports and navigating your POS, simply tell AI what you want to accomplish using plain language. FlowHubMCP gives you the freedom to connect the AI tools you already use, like ChatGPT, Claude, and Gemini, so you can analyze your business, update pricing, move inventory, and create promotions. Learn more at Flowhub.com. And I can attest that uh that is very real. Our team already using it, and it's real cool.

SPEAKER_02 3:04

Nice. Yeah, I'll have to look into that more. I don't have a dispensary, but always curious what FlowHub is up to. And just in general life, man, you know, you and I were talking online about all the different things uh we're using AI for. And do you Claude here, do you chat over there, do you do Gemini over here? And yeah, it feels uh it feels like we're entering a new era where the more educated you can be, the more productive you can be. And yeah, shout out to Patrick Reya on your team. I'm excited to uh chat with him and see what he's doing over there. I think the ones are the innerbators and on the edge of this, I think there's gonna be a good ROI. So yeah, if you're a dispensary, check out FlowHub, see how their AI can integrate and help you out there.

SPEAKER_03 3:40

Yeah. I like the dual plug. It's a little bit of Flow Hub and a little bit for Patrick with the AI first cannabis um group that he's been doing. It's super interesting. I mean, just I was just on a board call earlier uh with another group that's gonna be joining in because everyone wants to know what others are doing, how they're using it, how we can learn from each other, because it's just it's it's just total white space. It's it's really cool.

SPEAKER_02 4:05

Yeah, and you used the word plug, which I understand why why you use the word plug, but like to me, it's just totally sincere. It's like here's where we are in life. AI is here. You got a dispensary, you wanting some software, with Patrick's thing, the like you know, partially a plug, but just more like how do we all work together in this industry to you know figure things out and get better. And I think that rolls well into you know talking about Christian. Christian, you seem like you're the perfect guest for the show. You know, super excited to talk about the hearings. I think that's the biggest thing that's been going on in the cannabis industry for the last few weeks here. Um, so it's good to get some inside perspective. But before we jump into all those details, Christian, tell me a bit about who you are and uh what you do at the Lockwood Law Firm.

SPEAKER_00 4:43

Sure. So I am a uh I'm a Floridian. I'm a Floridian attorney. I got my start in the industry as uh a regulator in Florida uh back in 2015. Um, worked for the state for three years and uh was the director of the OCU, which then became the OMMU. Uh left, went into private practice. I've worked in the industry for an MSO. And then for the last uh about year and a half, I've been with the Lockwood Law Firm. Lockwood Law Firm is a Florida regulatory and administrative firm. We are um very, very active in the Florida medical marijuana industry. Uh, we represent several Florida MMTCs, which are the license type in Florida. They're all vertically integrated, they're very large licensees compared to other states. Um I do a lot of that work. Um that's kind of that obviously that's kind of my bread and butter from where I'm uh my career has gone. Um and uh I'm um definitely doing a lot, uh, a lot more than I thought I would be doing last year about like federal work of working on DEA registrations, uh, helping clients kind of prepare or um understand what's happening with the federal government right now. And um that kind of led me to go up to that the the hearing that we're gonna talk about today, just kind of covering it and and trying to get as much information from that process as possible.

SPEAKER_02 6:16

Uh you're still digging there, Christian. I don't know if your notifications are on our office.

SPEAKER_00 6:19

Yeah, let me um sorry, I'm good.

SPEAKER_02 6:22

You're good, take a second, no stress.

SPEAKER_00 6:26

It's not my phone, it's my iMessages on my computer.

SPEAKER_02 6:29

Are you on a Mac?

SPEAKER_00 6:30

Yeah, I'm on a Mac.

SPEAKER_02 6:31

If you go to that upper right hand corner, maybe click that do not disturb button. Don't worry, we'll edit this out. I'm just kidding, I've never edited the podcast before. We'll do we'll do it live. Give you a second thing. Yeah, we'll we'll we'll we'll we'll fix it in post. Don't worry, man.

SPEAKER_03 6:54

Okay. Well, while while he's doing uh while he's getting that sorted out, I mean so Christian got connected to us via Emily because the uh Emily with uh the work she's doing at Sunburn has been doing a lot of work with Christian. So um this was a great opportunity to uh meet Christian and hear more about it. Um I've obviously heard a lot of great things from Emily and the work that they've done in Florida. Um so uh it's good to all be connected here today and uh digging in on this DEA situation.

SPEAKER_02 7:26

Yeah. How did you get into the whole cannabis industry, Christian?

SPEAKER_00 7:30

Um I'm one second, I'm trying to I'm trying to still do the do not disturb thing. I'm sorry.

SPEAKER_02 7:36

Um I think on the upper right hand corner. If you look in the hyper upper right hand corner of your Mac, mine has like a moon you can click that'll make it go into do not disturb.

SPEAKER_00 7:45

Yeah, more than it doesn't have that.

SPEAKER_02 7:47

Um how about if you go to that box? How about next to the time in the upper right hand corner? Do you see a slider box you can click on? Yeah, that has a drop that is a drop-down with do not disturb.

SPEAKER_00 7:56

Yeah, I see it. Okay, do not disturb. All right, do not disturb is turned on. Okay, cool. So um how I got into this industry. I um so I I actually did a uh a project when I was at um MBA. I went to uh a school that was very focused on entrepreneurship. And um the first class that they make you take, or one of the first class I make you take take there is called New Venture Creation. And so you have to pitch a business idea and then get your your classmates all kind of vote on who they think the best ideas are, and then the top five build the team for the people who weren't in that top five, and then you kind of build out a business on paper. Uh at the time, so my family uh does a lot of investing in like commercial agriculture, like Iowa corn farms. Uh my mom's from Tuscaloosa, my dad's not a huge fan of uh any kind of drugs, and so I thought, like, well, I may as well do something on paper that I would never do in real life. So we built my friends and I built a marijuana company on paper, and this was in 2013, right? So I was already uh a barred attorney at that time. Um and uh one of the things that my my best friend and I actually encountered was this whole concept of competitive applications for marijuana licensure. So being a lawyer, he's kind of a business strategy and ops guy. Um we we were kind of at the initial cresting of the competitive application process when people were really starting to think about that process was being professionalized. Um, and then I probably made the worst financial decision of my life of instead of just doing that full time, I became a regulator for the state of Florida and graded applications instead of writing them. So uh I looked to apply for um a job. I sent my resume to the state of Florida because I'm from Tallahassee. I wanted to come home from Boston. And um I I told some of the guys that I was I was sharing my resume with, hey, like show this around and and you know, feel free to edit at your leisure, like remove the cannabis stuff from it. Because this is this governor Scott administration, it's a conservative Republican governor. Um, and they were like, actually don't do that. There we there there might actually be kind of a something that's up your alley that where this is relevant. And I ended up being like employee number two at the Office of Compassionate Youth and became the director, um, which was that was my entree.

SPEAKER_02 10:19

Very cool. Well, it sounds like you have a great background for this, Morgan. Let's jump into these hearings, but before we get into the nitty-gritty, you want to help us uh set the set the stage here of what we're jumping into.

SPEAKER_03 10:30

Yeah, so what was it over the last two weeks? There was uh closed session hearings, right? There was no public uh access, so you had to be an attendee to actually hear what was going on. And this was, from my understanding, was supposed to be a narrow focus uh discussion for the DEA to, you know, they had a list of witnesses and whatnot that were coming in to talk about um rescheduling of cannabis. Um, and and again, supposed supposed to be narrower beyond medical. And um, and I honestly have not really kept up with much of the day-to-day because once I knew we were gonna have Christian on, I was like, I'll just get all caught up here today uh with what was actually going on. Where did the conversations evolve to? Did they get off topic? Like what actually happened? So um, so Christian, you know, for those like me that have not followed every day or what was available every day, what were the hearings actually designed to accomplish? Why don't we start there?

SPEAKER_00 11:38

So the hearing itself was um a hearing on the um notice of proposed rule from the DEA, which would reschedule the entire category of marijuana. So, as I'm I'm sure you guys and and probably a lot of your listeners are aware, is that um, you know, several months ago, the attorney general uh by final order rescheduled medical marijuana and basically said if you've already been federally approved, or if you're a licensee operating in a medical marijuana state and you are abiding by those state medical marijuana laws, you are now scheduled three. This was the entire category, the entire universe of marijuana. Um, are we going to reschedule that? And obviously, uh anybody follows this issue, there are people who are opposed to doing that. Um and they petitioned for a hearing, and um the DEA made the interesting and kind of unusual decision to exclude uh proponents. So the industry was not represented in this hearing. Um, people who are advocates for marijuana. And I'm going to stick with marijuana because of this particular thing. I understand the parlor lines between cannabis and marijuana, but the federal government, it's marijuana. And this hearing it's marijuana. So it'll just be kind of easier to stick with that, especially kind of comparing my notes. So I don't mean to say the wrong term, but I'm being specific with my language. Um so what they were basically there to do is, you know, under federal administrative law, it's incumbent upon federal government to uh to defend and support uh their proposed rule, which would reschedule marijuana, uh, against some pretty fervent um opposition from um a pretty diverse group of of uh petitioners.

SPEAKER_03 13:36

Do you and was it a cross-section of industries that these uh opponents were coming from? Was this a specific area? Just kind of like who who were like the major groups that were there advocating that cannabis should not or marijuana should not be rescheduled.

SPEAKER_00 13:52

So um the first uh uh probably the most obvious is smart approaches to marijuana, Sam, which was probably the most prolific anti-marijuana.

SPEAKER_03 14:02

He's a huge fan of the pod, by the way.

SPEAKER_00 14:04

Yeah. That's right. So Sam was there. Um the uh also there were three opposing states that had joined together. So Nebraska, Idaho, and uh Indiana. Um Sam and the opposing states actually have the same lawyer. So they both use Port and Law, they both use Bill Barr's law firm. So they're when they would run around doing at the beginning of the morning, every morning, when people are doing their introductions, the same gentleman would stand up and he was represent. Well, he and a couple other lawyers were representing both of those groups. Um, Tennessee Bureau of Investigation was also there. They are not part of that um group of three states. Um now there were also kind of there were there were two specific individuals. Um one was a uh physician and one was a uh pharmacist. And um they also put they put on witnesses, they made their case. The the physician had an attorney, the um pharmacist was pro se, so he represented himself, and he actually uh led a direct um of a of his own witness as well. Um then there was a basically a drug testing um company, an advocacy group for um uh basically looking for harsher penalties on marijuana, harsher restrictions on marijuana in order to prevent um intoxicated driving. Um so as you can see, like a very kind of wide array of perspectives um on people who would oppose marijuana.

SPEAKER_03 15:39

Do you so if the position of the DEA is only inviting those that are opposed rescheduling, does that mean they have a position on it? Or I'm just trying to like get a sense of what were they trying to accomplish and like what were they what what were like some questions that they were looking to discover in this in these hearings?

SPEAKER_00 16:00

So DEA owns this issue now. I mean, the DEA has taken the affirmative position that marijuana should be rescheduled. So they are not just marijuana. What no, yeah. So this this hearing, they propose they have proposed by rule to reschedule all of marijuana. They have put that out into the universe. So unopposed, if nobody said anything and there was no hearing, that would move forward and they would just reschedule marijuana. Um, so DEA now owns this issue. The reason uh I have I didn't I talked to some of the DEA attorneys. I haven't specifically on the record gotten them to say this, but um the the legal reason why they didn't allow industry or advocates in to speak was because they're they're really not affected parties. Like they're they're they benefit if the rule goes through. And if the rule doesn't go through, well, it's like they were gonna argue it for to for it to go through anyway. The people who are affected would be the people they're already in litigation with or the people who are threatening to sue them over uh rescheduling marijuana. Um, now the practical reason why they don't want those people in the room, they don't want industry or advocates, is because it's very important for the DEA, uh, and we'll get into what they're specifically asserting um in their case, but they don't want people testifying that marijuana has no harms. DEA take the position marijuana should be rescheduled, but DE on marijuana affirmatively has harms. That's important because they want marijuana to stay scheduled. If if they had people testifying that marijuana doesn't cause harms, has no propensity for abuse or very, very low propensity for abuse. It basically should be scheduled similar to alcohol. Um it disrupts their case. It it kind of muddies the record. And so in his opening statement, the lead attorney for DEA said, let me be clear, when we're talking about marijuana, one of the ways it's very important to think about this judge is that um every party you're gonna hear from in this hearing concurs that marijuana has harms. So boom, you have now ensured marijuana should be scheduled. That's the first step. The next step is okay, now marijuana must be removed from schedule one. And then schedule three, now we're just debating about which schedule two through five marijuana should be in.

SPEAKER_03 18:23

Huge implications are huge.

SPEAKER_00 18:26

Yeah, very big. Um so I mean their affirmative case basically comes down to like three things that they essentially need to probe. So, first is that marijuana um based on a two-part test, which they basic basically created to reschedule marijuana, um, that it should not be schedule one, that there is um that there is a medical use for marijuana. Uh the second would be that there is a moderate or low um potential for abuse of marijuana. And then the third would be that there is some accepted safety, uh, but there is accepted safety for use under medical supervision for uh for marijuana. So these are kind of the the overarching three things that when you're making a uh like a debate flow that they're trying to assert that then the opposition is then needs to attack because those are the legal criteria for what they're trying to do with marijuana.

SPEAKER_03 19:20

So one last remain, I'll pass it to Jesse. But uh that so I did see you shared some notes from the after day one, and it seems like this was potentially consistent throughout. But if this is talking about full rescheduling, medical's already be rescheduled. Why was there so much talk about the medical aspect of it instead of just the you know, because to me that still seemed very very much what's already been done instead of and and gave the potential opposition more to try to attack versus you know moving to just full rescheduling. Does that make sense when what I'm trying to get at?

SPEAKER_00 19:59

Yeah, it does. I mean, I think it's because of the procedural posture of what DEA has chosen to do, and what frankly what FDA uh recommended that they do, which is um, well, so um the way the way federal just taking a quick step back, um, and I'll and then I'll get there, is that the way that this rescheduling process works is FDA uh uh via HHS makes a recommendation to DEA, and that's partially legally binding and partially uh uh like advisory. So it's legally binding in the sense that if FDA tells HHS and HHS tells DEA, this this drug or uh or compound should not be scheduled, DEA doesn't have the authority now to schedule it. Um but if they say it should be scheduled, DEA has a decision of like how it where based on FDA's advice, where it should be scheduled or where it should be rescheduled. So because DEA is taking the position that this is a drug that should be scheduled, it's a drug. It's it's covered by the FDA. So the determinant of which schedule it falls under, one, two, three, four, or five, is based on medical criteria, what this medical science says about what it does, um what its potential for abuse would be. And this was this was a very strange argument. Um and I frankly, I think all of the attorneys involved in this case, DEA and the opposition and the judge, kind of struggle with this because never in American history, like not never in this system that we've built with FDA and DEA, um, their their collaboration for scheduling drugs, have we had a drug that's we're we're basically saying an entire you know organic plant matter should be scheduled as a drug rather than a specific identifiable compound. Um and because of this kind of very and and it's already exists, it's already very widely consumed. Um there's Already a lot of science to spec that this is Schedule One. It's the one of one of, if not the most studied drug in America right now. When you go on PubMed, it's think there's like 10,000 articles that you can pull up that are about marijuana. So it's very much a square peg and a round hole. Like the alcohol got the benefit of basically getting the treatment that it did and getting exempted. Because like alcohol would have the exact same problems marijuana does. But the problem is now they're having to kind of justify, okay, based on our scheduling system, how do we make this work? And we're focusing on like the DEA was very intentional to the judge. You need to not think about all of the elements that go into recreational use, the potential harms, the political and social impacts. That's not material. What's material is you have to look at the compound itself, at the drug marijuana, the category. And you have to analyze it based on whether or not has um you know an accepted medical use, that there's science that supports that that medical use is, you know, that is essentially effective for that use and that it's safe, and that this thing isn't so super addicted that it it should be um kept in schedule one or schedule. I mean, I'm sorry, it couldn't be in schedule one, it should be kept in schedule two.

SPEAKER_02 23:23

Yeah, I think the problem, I mean, the problem for me with this whole thing is that there's the the whole premise is fundamentally flawed. Like even not talking about whether cannabis could be should be descheduled, which should be a distraction to today's conversation, is that you're taking a plant and you're trying to bifurcate it into two things, medical and adult use, which to me is a flawed premise in the first place. But then you say, okay, medically this plant is schedule three. Figure out what the goddamn same same thing is for somebody who classifies themselves arbitrarily as adult use. And so I go buy an ounce of flour, I share half of it with my dad, who's a medical patient, I smoke half recreationally. What is that flower? And the flower doesn't know what it is, right? The flower just knows that it's helping you, but it doesn't know if it's schedule one, schedule three, or descheduled. And so, like, I always feel like I have some obligation to just object to the premise. And I'm sitting here on Chat GPT seeing that Xanax is schedule four. Yeah. It's just like, Jesus Christ, guys, this makes no fucking sense. Like alcohol, which kills, I don't know how many hundreds of thousands of people, cigarettes kill hundreds of thousands of people. Xanax, go take that for three months and try to get off of it and tell me how that one goes. Is that one not highly addictive? Does that that one not have potential for abuse? Oh, that's schedule. What did I say? Four.

SPEAKER_00 24:34

Fentanyl is schedule two.

SPEAKER_02 24:36

I know. So, like the whole thing, I mean, uh, this is a distraction of the conversation, but just hearing.

SPEAKER_00 24:40

I'll tell you who agrees with you, Jesse. I'll tell you who agrees with you. The judge. The judge in this case agrees with you in that sense that this this this distinction that we've drawn between medical and recreational, like it at the end of almost every witness's testimony, whenever when everybody was done asking questions, he would say, Okay, I have a question for you, uh witness. And he would either show or read the federal definition of marijuana, which does not make a distinction between recreational and medical, and says, Is this what you understand marijuana to be? And he's like, and made it very clear that is what he thinks about medical marijuana. I mean marijuana in general, not that he he does not draw a distinction between medical and recreational. He is considering the entire category itself.

SPEAKER_02 25:23

Yeah. Which just makes total sense. And so I feel like some moral obligation to object to the fundamental fundamentally flawed premise of dividing one plant into these two categories. And that the distinction between adult use and medical is also relatively arbitrary. And as Dennis Perrone said back in the day, all cannabis users or medical patients, whether they know it or not, he said it much better than that. But I think that's a valid thing also to bring up. Like if you're using cannabis regularly, take a look in the mirror and figure out if it's medical or really recreational. Because a lot of us, like me, who use cannabis on a regular basis, I'm probably using it for sleep or anxiety or whatever it is. But I just throw it in the category of, oh, you want to get stoned. It's like, no, I'm choosing a different alternative to you know the outcome that I want. So uh enough of Jesse's philosophical ramblings. Let's get back to the show.

SPEAKER_00 26:06

Um The DEA made the point that you just made. They threw their witness, Corey Birchman. So they everybody was allowed two witnesses, and one of the DEA's two witnesses is a pain management physician out of New Hampshire. And that that's on the record. They asked him about that distinction, and he's like, I don't draw a distinction between medical and recreational marijuana. Frequently, a lot of recreational, what we deem adult use, is really just people without a medical card or without doctor supervision treating a medical condition. That would that is something that the DEA got on the record. Well, we can't recreate. It's official, which is which is one of the most shocking things is the positions that DEA took. It's like bizarro world. It's it's it's like if you got in a time machine, DEA of of 2018 would not recognize the DEA's positions of 2026. It's striking.

SPEAKER_02 27:02

Yeah, last uh anecdote on that. My my son, who is 16, you know, goes to high school in Santa Barbara, and so people are smoking weed, ripping vape pens, you know, the the whole thing, you know, welcome to California in 2026. And uh he has one friend uh who uh smokes, you know, hits his vape cart all the time. So I was like digging in a little bit, like, well, tell me about the kid, because in my mind, I'm like, this kid is probably just treating something medically he doesn't know. And he's like, Yeah, he has ADHD, and his dad won't let him take you know any of those Ritalin or other medications. So the kid who's 16 is looking for an answer to how he feels, and so he you know is hitting the vape cart, you know, which people view as the kid's a stoner or you know, he's looking to get high when really the kid is probably just treating in the background this medical problem, you know, in a different in a different way. And so anyway, I just think these conversations you know are important broadly about cannabis, but getting you know back into this hearing specifically, just take take us inside. I think that's what people are really here, you know, here for Christian, is we're sitting on the outside. I'm catching some other MIDI reports, I'm catching some Dale's report, I'm reading some marijuana moment, I'm over there on uh well, MJ Biz, you know, whatever we got out there. I'm just trying to soak in what's happening. But you know, bottom line, you're the dude that was in the room. So take us inside there. Like what what stood out for you? Like if you're talking to an audience of ours and they're like, hey man, this guy was in the room, what the hell happened? Like, give us the bottom line of what what what stood out the most? What shocked you? What are the takeaways?

SPEAKER_00 28:20

Well, I I guess I'll start at the beginning. I was very surprised with the lack of um industry presence there, honestly. Um and frankly, media presence too. So like I I I'm one of I think three people in the gallery that was like not an employee of the DEA that was there for all two and a half weeks. And like, so the pre they they when you walk into this room, it's a very it's a small hearing room. So there's two two different uh rows, I mean two different sets of five rows of uh wooden seats that look like oversized church pews, very uncomfortable. Um, and then on the other side of the bar is uh you know three sets of tables. So one for Sam's lawyer, one for everybody else, opposing attorney's lawyers, and then uh the DEA lawyers, and then you have the you know the bench with the judge and where the witnesses sit. But you know, of those five rows, one was one row was reserved for like the DEA bench, and then the back row was reserved for media, and like there were at most like two reporters at any given time, I think a total of maybe six reporters the entire time we were there. Um, so like you'd see someone, it was it was, you know, I'm not gonna bash anybody, but like you'd see people on YouTube or on podcasts or whatever from the media talking about what's going on, and like they were no them and no one from the organization was in this room. It was basically, I think that New York Times was I might I might be missing like one person, but New York Times was really the only like general interest media that I I saw or interacted with. Everybody else was kind of um marijuana focused, but there were some people who you would think would be in that room who were not, and then the industry really wasn't some there were a couple attorneys or people who kind of represented law firms from attorneys who were there, but um it really wasn't that well attended. And I got there at five in the morning on the first Monday that it started. Um, and I did that because I kind of flew up because I was interested, my clients are interested, but I I wasn't there for a particular reason. And I thought it was gonna be, you know, lying out the door, you weren't getting into this small room, and then you can't you can't watch it. And so my boss basically paid for me to fly to DC for nothing. So I was like, I promise you, boss, like I'm gonna wake up at 4 50 in the morning, get dressed in my suit, get get a Starbucks, and then just stand outside for four hours. And there were a couple people who actually beat me there because they were like the paid line holder people in DC that like people who go pay to stand in line for them. But then um as the days went on, you still needed to get there early because if you got if you got there later than like 8 50, they wouldn't just wouldn't let you in the building. Um, and then there was always a small chance that you would get knocked out. But that was the first thing. So small room, it wasn't televised, not a whole lot of people there. And I think part of that reason is I think a lot of people, even in the industry, did not understand this hearing dealt with rescheduling all of marijuana. Um, and that's something I've tried to really beat the drum on. This is something that's being considered. Like we should all be paying attention to this. Um, the other thing, so I let I'll talk a little bit of meta about kind of the vibe. Um mentioned it's weird DEA's taking this position. Um DEA, I would say if I had to describe DEA's case, it was basically brute force. So it was like they have their theory of the case, it's very minimalist, it's very specific. Um and if the opposition made arguments outside of that case, that like a three-pronged case, basically, they pretty much never objected. So in in Florida, like if I'm in an administrative case on even like a basic rule challenge, um basically, whenever you're making traction, it's almost like calling time out in a you know an NBA playoff game. You you disrupt the other side, you try to keep the record from being pristine for them. They did not. Really, the only objections they consistently made were like relevance objections, and it was very rare. Um, and so you had this thing where DEA was basically letting these guys tee off on them. We don't we just don't care. That was very striking. Um, that particular strategy.

SPEAKER_02 32:38

Were there were there any compelling arguments against? Like I think we could all sit here and you know um, you know, rally each other and talk about how awesome cannabis is and you know why it should be schedule three at a minimum and probably logically be descheduled. I think we know those arguments well. And I think most of our audience sitting here is, you know, not just financially campaigning for schedule three, but I don't know anyone really involved with the cannabis industry. I don't know anyone, honestly, that uses cannabis that would argue, you know, schedule one or two makes sense. It seems like people that are pretty out of touch with the plant. But I want to be objective and say, like, is there something on the other side of this? Like, I've got this woman, Bertha, yelling at me on X right now. I don't even know who this person is, but someone named named Bertha was just yelling at you on Twitter. Yeah, she's yelling, uh yelling at me on X that cannabis has no medical use. And I'm, you know, honestly, I'd like to swear to the podcast, but fuck off is my attitude to that, because my dad, who unfortunately passed away a couple of days ago, not looking for sympathy, but I just want to you know frame the conversation. He, you know, had chronic regional pain syndrome his whole life. You know, by the time he was my age, he was, you know, retired and disabled from car crashes that he got into. He got so he's taking a thousand milligrams of oxycontin a day, an insane dose. Oxycontin usually comes in 30 milligram pills. That's 33 of those a day that he was taking, and not for fun. It's because he's in so much pain from this chronic regional pain syndrome. He got involved in cannabis in 2015 and completely changed his life and eventually completely got off opiates by using cannabis as his primary pain pain management tool. Everything about his life got better, pain got better, personality got better, all the horrible side effects from opiates went away. And then this woman online is only is yelling at me, telling me that cannabis has no medical use. And it's like, fuck you. I just watched it my in my life. I just watched it with the person closest to me, which is my dad. And I also had a dispensary where I helped thousands of people with real problems. And so, like, I get the I get and very passionate that it's not schedule one, it's not even schedule three. But if we land on schedule three now for now, fine. But my question with this drastic traumatic framing is was there what's the compelling argument against that? Because it is not what Bertha's framing to me here.

SPEAKER_00 34:40

So I I guess there's two categories of arguments. There's a process and procedural argument, and then there's kind of the nitty-gritty attacking the three prongs that I mentioned that that um that DEA is putting forward. So um the the procedural one is what I think is probably the most compelling. I I just for the record, I think that DEA is going to prevail here. I think they're either going to get a favorable recommendation from the judge. The way that this works is that uh not to bury the lead, but the the judge will make a recommendation to DEA. DEA ultimately is the arbiter. They get to decide whether or not they accept that recommended order, they put out something totally different. And I think DEA is either going to get a favorable ruling and just accept it, or they're gonna get a negative ruling and they're gonna be like pound sand, we're gonna do it, we're we're gonna go to appeal no matter what. So let's just see in circuit court. Um, but rewinding, the procedural argument I think is probably going to be more um fleshed out and come even more compelling at the circuit level than it was in administrative level, but it's still worth mentioning, which is the process by which uh HHS ultimately like determined that they should recommend to DEA that uh this should be rescheduled. So this is a little wonky, uh, but I'm gonna keep it kind of high level and we can we can drill down if you guys want to on any particular thing. But typically when FDA considers a drug for rescheduling, they use what's called a five-factor test because uh the the easiest way to get scheduled is f something gets FDA approved, and then they figure out what schedule that drug is is going to be because you've gone through the FDA process. Uh when you don't have an FDA approval, but you want to reschedule a drug, they they use what's called a five-factor test, and they've used this for every drug before marijuana and since for rescheduling. And that basically mimics the ultimate conclusions of FDA without kind of that precise double blind uh certainty that you kind of get from uh vetted FDA trials. Um marijuana did not use that, and it's because there are there are elements of marijuana that really it's very difficult to for it to conceivably make it through the five factor test. So, like one of the requirements of five factor tests is that it be standardized, uh, that it you'd be the drug itself that's being rescheduled, have uh reproducibility. So it's like you can you can do the same thing over and over and over and get the same result. Um that you have these kind of very precise causal uh demonstrated scientific studies. Um and that that's tough for marijuana. And so they have they created this two-part test. And so it basically for that process, you have to prove wise w widespread medical use and you have to prove credible support um for for use from like from studies, basically. And so the point that they got they got the you know, the opposition cross-examined the uh a doctor from the FDA that was part of this rescheduling analysis, and they got him to uh a concede that marijuana would not pass uh the five-factor test, and then stated that you know he worked on this for eight or nine months, this ultimate decision, and they made the decision to move to a two-factor test in like with two months left, and that that decision was basically handed down to him by his bosses, whose bosses told him to do that by fiat. So, what the opposition is basically kind of trying to create the impression that this was a political process, as this was arbitrary, that this was capricious, and that this is not backed by science. This is a they basically had a result they wanted to get to, and they engineered a bureaucratical way to get there. Um, I think that I mean, DEA obviously had answers to that, but that's some that is an issue you are going to see Sam and the opposed states focus on um at the circuit level. Um, you know, there were there were some compelling witnesses, I think, on the on the other things. I think um, you know, testifying about I but it there are things that you you would concede that you would understand, but then DEA's argument is what anyone in the industry argues, which is like things like diversion. Yes, we understand there are problems with diversion, but uh like there are problems with diversion with fentanyl. But that does not mean by definition fentanyl is a schedule one drug because it's not um that there are problems with you know intoxicated driving. Well, uh if you get hopped up on opioids and you drive a car, you you too will cause an accident. And nobody's really arguing that people should get high to like pop a 300 milligram edible and then drive a car.

SPEAKER_02 39:32

So how how about if I take a descheduled drug like alcohol and drive? How does that work?

SPEAKER_00 39:38

That's right. That's right. And so so that there's a very that's why I said DEA was very brute force, which was they said, okay, we have three things, only three things that we're pushing. First of all, marijuana should not be a schedule one drug because it has medical use. That's all we have to do. We have to show one medical use. And they focused, I think very intelligently, they were very conservative with their approach. They said, we are not trying to prove, you know, there's a couple hundred uh conditions that marijuana is recommended, recommended for if you combine all the state programs. We are focusing on pain, specifically neuropathic pain, on anorexia related to other medical conditions like AIDS, um, and nausea related to like other conditions or treatments for those conditions like chemotherapy. So, like, probably the lowest hanging fruit, and I would say from an evidentiary perspective and from a like a scientific perspective, you know, it's also smart because those are some of the hardest conditions to disprove that you like don't feel better. So if you have pain, like it's very hard for opposition to prove that the people who are feel like they're benefiting aren't actually benefiting because who else it's very difficult to objectively judge pain, which is also you know, it cuts both ways. It's it's the opposition tried to say like that that that basically invalidates the study that all of this is stuff is relative and impossible to prove. But when the federal government puts its stamp of approval on something that says we believe this, it's um the people forget how freaking powerful and resourceful and like um it's very difficult to knock the federal government off of the position once it takes it.

SPEAKER_03 41:14

We've been dealing with that up until this point to get to this point, yeah.

SPEAKER_00 41:18

And and that was really something it was so interesting to watch the federal government do this too, because it was like it's a case study in what happens when the federal government wants to admit it's wrong. Like, how does it how does the federal government admit it's wrong and change its opinion in real time when it's put I mean, like we they they refused to reschedule in the 200 teens, and and there's record of that, like that was cited by the opposition. Like, how do you reconcile changing your mind over the course of a decade? And they did their best to to try to justify that.

SPEAKER_02 41:50

Yeah, I don't want to turn this into something emotional for me, but yeah, my dad went through chemotherapy, and one of the last like meaningful moments that we had was he felt like complete shit from this whole experience. And uh he we have a uh CPG brand at Leaf called Himalaya, and he my dad hadn't smoked weed in two months because he was so fucked up from this uh experience. He was like in the hospital for 36 days and like it won't go to the whole thing, but about as bad as you could get. And he was home for a while and uh he looked at me and he said, Jesse, do you have any weed? I'm like, Yeah, of course I have weed. As long as you've known me, I've had some weed. You know, just tell me which form factor you like. And uh, so it seemed like easiest for him to hit a vape cart. And so I went and gave him a vape cart and he took two hits off of it. He hadn't smoked in, like I said, in two months because his his condition. And it was the thing that just made him feel the best. And he looked at me and he said, Jesse, he's like, this is magical. He's like, I can't believe how much better I feel. It's like he got really inspired for a while after being like so crushed from you know all the things that were going on. And like one of the last things that like meaningful conversations he had is he's like, where can't you get this stuff? I said, Well, if you're in Nebraska, I I don't know all the states, you know, South Carolina, like what are your what are your prohibition states? And he like gave me this impassioned speech about like what to do with my life to try to change that. And so I think that like when you look at this, it's I don't know, man, like a partially we're talking about procedural thing, but we're also talking about like a people thing. When you talk about like chemotherapy and like the benefit to those people, it's like it's an inhumane thing to continue to do what we're doing. It's a inhumane thing to have like something so helpful to people. And if you're in fucking Nebraska and you have chemotherapy and you're dying, you know, we're gonna prevent you from having access to this. And I understand there's like state level issues here and it's more complex, but man, like when you get into if you're like deep into this stuff, like all of us are, and you're deep into like the personal part of it. Some of this stuff is just like so offensive to think that like, you know, Morgan's been through this stuff personally as well, that like people trying to prevent people that need access to these things, whether you're medical or adult use. You know, I think that the whole foundation here is just like cruel and unusual in some ways. And um, it's a bit of a diversion from the conversation, but I think it's important because like this isn't a this is about money and all this sort of stuff. It's about relieving 2 ADE and I work for a big cannabis company. Yeah, yeah, I get it all. But at the end of the day, it's like, how can we improve people's lives? Like, that's why I think you should be in this industry. I think that's like the North Star for all of this. And like to hear these conversations. Yeah, you're talking about things like chemo, chemotherapy, and chronic pain, and to watch somebody, you know, in my own life go through this stuff and have the conversations about, you know, whether we should give people access to this. It's just like, you know, it's just the whole thing just strikes me as a bit insane when you take some steps back to it. Like it's cool we're going through this nitty-gritty process. But for like people that have, you know, lived through some of the stuff and people that have like dedicated their lives to it. When you just take a step back, it's like, yeah, cool story we're getting here, but we're still like some of this stuff just sounds like insane conversations to me about like whether this you know has this kind of value. Yeah. Morgan, why don't you take us uh to the next section here about reading the tea leaves? Let's talk a little bit about where we go from here.

SPEAKER_03 44:51

Uh yeah. So you know, I and I definitely heard a bunch about the you know, hanging on this this procedural thing and um not to kind of go back a little bit, but uh it was my understanding that they the two-part test is was not new. Like, I mean it's relatively new in history, but wasn't this like a couple years ago that they introduced this? Understanding that it is not a pharmaceutical drug, it is not processed down to the compound, it is an organic plant, so that you know it's apples and oranges. And so like I'm trying to remember when, because I thought we wrote about this to our investors, and I thought it was like two years ago, like two falls ago. Yeah, and saying this is an important thing.

SPEAKER_00 45:34

So, what you're we're talking about is uh is uh is actually a very important. Um I see a comment company, it's a it's an important like legal point that you're making. So legally speaking, DEA is bound by HHS. When when HHS says we picked a test and we use this test, this test is valid, DEA is bound to accept it. DEA doesn't have the legal authority to test to test the test, basically. So FDA, HHS, that recommendation. Well, HHS's recommendation to them based on the FDA analysis is gospel, um, scientist scientifically. DEA is like kind of kind of an arbiter of okay, we understand what you're saying, but they they still kind of can they have some wiggle room to decide what they're gonna do with that information.

SPEAKER_04 46:22

So that test is legally binding, right?

SPEAKER_00 46:26

The test is legally binding. But just because the test is legally binding does not get is not going to keep the opposition from challenging that, like, a that the test fundamentally in and of itself is illegal or is arbitrary and capricious. Because you're you're now taking up to the circuit court, you're now in the appellate process. So the in the appellate process, you can attack not only, I mean, the the facts are kind of decided, you you attack can attack process and you can attack, okay. We understand what the law is, but like, or this what this judge said, but that was fundamentally wrong. That's inbounds for for a circuit court appeal. Um the second thing is that like even if you use that two-part test, that the conclusions that you drew from it still don't support your argument, which is what they're also trying to argue. So your point, your point is well taken. It's the the there will not be an outcome in this administrative hearing where the two-part test is uh, I think, invalidated, which is why I was like, I think this is probably more interesting for the circuit court than on for the uh administrative hearing. I think I for the record, I think DA is gonna win this.

SPEAKER_03 47:33

Yeah, so this is I'm I'm just gonna I'm going there because I, you know, maybe off script a little bit, but is is that where this is potentially going next? Is like instead of having a a hearing, you know, having the they say like this should be rescheduled, and then is this where Sam is gonna come out next? Is there gonna push this into the appellate court system? Like I mean, you know what I mean?

SPEAKER_00 47:58

Like, is that they're already there, they're already in circuit court on uh there's already an uh an ongoing circuit court case over the rescheduling of medical marijuana. And like, yes, so to answer your question, this is un unquestionably going to be going to circuit court. Um I I I mean, I guess anything is possible, but like uh this is going to go there, they're going to make these arguments. How this process moves from here is so they already did the you know the notice of proposed rule. So now um the ALJ has it's typically like on an administrative case, 30 to 90 days. Although this is kind of fairly complicated, high profile, wouldn't be surprised if it took a little bit longer than that. ALJ is going to make a recommended order. Once you put that recommended order out, um, every party to the case gets to gets 30 days to file what are called exceptions, which is like, okay, judge, we read what you said. We think that this recommendation is wrong in these ways. Then DEA reads the record, they read this recommended order, they read the exceptions, and then they make a final determination and they make their final agency action. The final agency action is the end all be all, and that is what would be ultimately challenged in circuit court.

SPEAKER_03 49:11

Okay. And I'm just trying to think, because like from our industry's perspective, now people are starting to project like by September this is going to be this, and by October, this is going to be all done and everything. And but if I hear, you know, circuit courts and I hear like they don't move that fast. Like, I mean, like, and and I guess, you know, just putting that aside for a second, is like, was this were these hearings beneficial in moving things forward, or was this actually helpful for the opponents to get more ammo to try to go into the courts? Like, I'm just trying to understand, like, I mean, it seems like to your point the DEA's got its mind made up, but you know, also, as you were saying a bit earlier, to some degree, the DEA is basically the cops. They don't write the rules, they're just enforcing the rules for the most part. And now, you know, so like I'm just trying to understand like what what was learned, like, is this making the DEA's position stronger? How does this set them up to then have to deal with Sam in in the courts?

SPEAKER_00 50:11

Well, okay. Um, high level, because there's a lot to unpack there. High level, I would say that um if you talk to any administrative lawyer that has done like has practiced administrative law for any period of time, like they will all they will tell you that they're those are uncomfortable conversations that we have because this isn't civil or criminal law. Like you don't get the certainty of a judge making a decision, pounding a gavel, and like that's it. Like the administrative process is is porous to challenges for a reason. It's it's uh like the whole decision or the whole way through, this decision faces the gauntlet of administrative challenges. It's procedural. Now, like this is why Congress acting would be a way more efficient process than what's currently happening, but that's not the world in which we live. So um it's hard to predict because like even in the meta, so even in the medical, um, medical marijuana circuit case, right? There was discussions because the opposing parties in that case or the petitioners have are seeking a stay. They're basically seeking the judge to say, stop what you're doing, that like stop registering these businesses in with DEA, stop these DEA inspections. Like, we need to keep the schedule one. And like there was there was speculation that that stay would be ruled on prior to this hearing, and it wasn't. So even there, like that's that's confusion. And I think what ultimately, like, I think cannabis companies, cannabis investors, they're like capital is probably the thing that keeps them up the most late at night. But like, in my opinion, the the capital concerns, all concerns in marijuana right now basically boil down to confusion about like regulatory certainty. And like people really don't know the rules of the game in advance, and the rules are being written as we proceed. That's what's happening here. So, like I will I will tell you illustrative of this point, is I have spoken to DE agents on the phone through a registration process. I spoke to people who work for the DEA while I was in the DEA building at this hearing, and then you listen to the lawyers and like they're saying different things. So, like, there are parts of the DEA that are not thrilled about this, there are parts of the DEA that it's their job to defend this, and then there are people who are who are happy that this is happening. Um so I think first of all, I would tell the industry is like you should be cautious about uh how like open the DEA and optimistic you are as to what the federal government's actual position is on this, because they are they are there's a difference from arguing something legally in court and then like actually making it work in real life when you're dealing with the DEA moving forward. Um, and it's possible that um they're doing this now, but like functionally working with them might be quite difficult. They it might not, but it it might be. Um, it's also like we don't really know how some of these circuit court cases or how we don't know how the administrative cases, we don't know how these circuit cases are gonna go. Um, we don't know if stays are gonna be granted. We don't know if ultimately opposition could prevail and we have to go even higher up the chain. Um, so I think I would love to talk to anyone who is like 100% convinced that they know what is about to happen or can like predict even the next six months of the future because um I think that person could make a lot of money if they're 100% certain what's gonna happen next.

SPEAKER_03 53:50

Calchi.

SPEAKER_00 53:55

Do you know? Do you I don't know if you followed this, but there was actually a funny Calci story on the rescheduling. So uh I have a buddy who bet a lot of money um on uh rescheduling not happening uh over the summer. And uh I texted him, he he he woke up in a very cold sweat that that uh that final order came out because it was you know it reschedule medical marijuana. Okay, but Cal she determined that because it was a partial rescheduling, it didn't count as full rescheduling. So we got to hold on to less money. Yeah, but but let I mean let me let me say one more thing though, on that is um ultimately this is incredibly good for the industry because if you if you if you kind of step back from the the riptide of what's happening right now, the day-to-day drama or even the week-to-week drama, the federal government is putting it on the record that this is a beneficial thing, this is a good thing, and this is the direction we can go. Which means if the federal government changes its mind at some point in the future, they're they're they're hosed in the same way that they're kind of hosed now by their previous position. Like anytime the federal government goes on the record and says, we are proponents of marijuana, we are proponents of of taking favorable action to the department, I mean, to marijuana, that is any lawyer in the country now can use that in federal court or in state court as uh to justify the positions that they're taking. And I think once you get medical marijuana anchored, you're gonna have some arbitrary and capricious system equal protection arguments for people who are trying to uh trying to get recreational done through the courts rather than through the executive branch of the government. It'd be very I don't I do not understand if you can get through this medical marijuana stuff and just medical marijuana anchored. This is legal, this is federally acceptable. I don't know how the federal government withstands our arbitrary and capricious argument when they try to enforce uh a Schedule I determination or or they try to make some adverse executive action against an adult use user or an adult use grower, an adult use distributor, um, when you walk into a dispensary and like these are the exact same products, and the federal government is is asserting there's no difference between these products. Um it's gonna be like they have cemented their position, which is excellent for the for the industry moving forward.

SPEAKER_02 56:20

And if you were to be, if you let's say you ran Cal She, uh Christian, what would you put the probably the probabilities of adult use being rescheduled in 2026?

SPEAKER_00 56:29

Administratively, I mean, I think it's I think DEA coming out and um doing a final order, I would put probably 80 or 90 percent. Like I feel pretty confident in my prediction that one way or another DEA is gonna move forward with this. And circuit court, I I don't really know, but like the the the thing that's important for people to consider on this is that once you get into circuit court appeals, you're talking like years, you're talking a lengthy process. And uh we don't know when the final order is going to be issued. There's not really a drop-dead date for this ALJ. And then once DEA gets all of the paperwork, there's not really a drop-dead deadline for them. So we're definitely going through midterms, I would I would imagine, on the ultimate DEA recommendation. I mean, and then you're talking about having circuit court cases going into the next presidency, going, we'll have at least two two sweeps at Congress. So it's like at some point when you have these uh American MSOs entering exchanges, when you've accepted the two ADE improvements, when um we've kind of these DEA you know inspections have been carried out and all these businesses are registered and are interfacing with the federal government. It's like at some point, all of these things become entrenched and become almost impossible to claw back. So it's you know, winning by inches, but each inch that we gain is like intractable. It's very difficult to claw that back once we've made progress.

SPEAKER_02 57:56

So what are the pro you know, practically speaking, and apologize for being naive on this on these topics, but you know, a lot of these legal things I don't get into. But if if administratively it's we we get the final rule on adult use being moved to schedule three, what's the implications of these uh circuit court cases? Like, does that for operators does that change operators finish 20? If if you're correct and this moves how you expect it, but we have these objections, appeals, whatever the right term is in this in the circuit courts. What's the impact to an oper to to a cure leaf or a verano or even you know my company, you know, leaf brands in terms of you know 280e and other things related to uh you know that classification?

SPEAKER_00 58:40

Yeah, the the taxes get better, 280e, because 280e is a prohibition against expensing um basically any of your expenses um as a business if you're um dealing with a schedule one drug or a schedule two drug where it's you know not legal in the jurisdiction of which you're uh like a state that's it's not legal. Um so once you what 280 is going to be an improvement. Um, I think as far as certainty for like banks, insurance, like I think probably register DEA registration is gonna be something that they ask you for. So there's gonna be kind of reciprocal certainty for on some of these processes. On the product side, I don't I don't think it materially improves as far as like legal certainty because and this is a little wonky, but when you're a schedule three drug, think about it as like, okay, now we're a schedule three drug. Um, it's a like this is ketamine, this is like test prescribed testosterone. Um this is anabolic steroids. So it's these are products that each go through their own approval and are deemed safe and effective. So when you move the entire category of marijuana to schedule three, okay, that's fine. But like marrow, the marijuana industry is composed of a constellation of products, and none of those products will be approved by the FDA is safe and effective. So the category itself moving into Schedule II is good in that you are not you don't have a Schedule I prohibition, by which means by definition, you are a drug smuggler and a money launderer. You're out of that. But uh your drugs are now a medical product without medical approval. So it you you I think the recreational marijuana and adult use programs will continue. I don't think they'll be materially changed, but that problem doesn't get unstuck because of rescheduling of marijuana to schedule three.

SPEAKER_02 1:00:40

And I hear that objection sometimes. I actually heard it the other, actually, I think I heard it yesterday about somebody saying, Well, what are you gonna do because none of your products are FDA approved? Like, how does that how do you think about that, Christian? Like, you know, there used to be products out there, you know, Morgan, you remember you remember dosist, right?

SPEAKER_03 1:00:56

Of course.

SPEAKER_00 1:00:56

Yeah, so you see products out there. I mean, not to be not to be like cynical, but like this and anybody who's been in this industry has been selling a schedule one drug for you know going on two decades now. So it's like material, it's it just it's a distinction without a difference. Like it's better to be schedule three and to be operating in a legal legal gray area than to be schedule one and operating in a legal gray area. But um so in order to like one of the situations DEA is gonna run into, and the the registration process is a perfect example, right? So medical marijuana company, we're and I'm not talking about adult use, just medical, right? These medical marijuana companies now are registering their businesses, um, but the DEA didn't build a portal like and a system or or promulgate a rule and a form for marijuana dispensaries. And so what they are forming up filling out are basically like slightly modified form 224 and form 225 for dispensaries and manufacturing facilities. Those are those are pharmacy and drug manufacturing forms. Um, there is not like an independent rule about how DEA specifically deals with these companies that have now been deemed Schedule III providers because they're compliant with the state program. And in order to do like meaningful enforcement actions, like you need rules, you need standards, you need like things that actually have to be promulgated. So um I think that I am one of the people that I do not expect crystal clear certainty from the federal government in the next couple of years. What I what I am very happy about is that my clients are no longer are likely no longer going to be operating in like an absolute legal dead zone of being Schedule One.

SPEAKER_02 1:02:45

Um let's say you're sorry, just one quick one. So your leaf brands were one of, if not the biggest producer of concentrates in California. Well, of 75, typically up to a hundred, you know, what we call fractions, which it be like, you know, you and I were talking backstage, like Gorilla Glue Shatter be a uh, you know, a fraction for us. And uh over here, I've got some garlic juice rosin, and then we sell a whole bunch of distillates. We've got all these different things. And so how do you think about those specific products? Like in that FDA context, is there any world you see where each skew that somebody has has to be somehow federally approved? I understand that seems insane going, you know, we were scheduled one, now we're scheduled three, but there is that concern out there. There is a, I think, Christian, if we're fair, there's like a bit of a contradiction going on there, right? Like we're a bit of an exception to the rule where we don't have a specific product. We have this whole category, which is cannabis, starts with our flour back here. But again, look at Leaf. We turn that flour into 75 different kinds of oil. Like, how do how do you think about that context in this FDA framework in an FDA framework? Or do you think just we're just a lifetime exception to that?

SPEAKER_00 1:03:53

Yeah, I think that the FDA, I think the gen the Attorney General's final order kind of, I think, signals how they're going to treat that, which is they've kind of put baby in a corner with the FDA, which is they say that like medical marijuana, like Florida MMTCs under that final order are operating as schedule as you know, schedule three producers and schedule three dispensers by virtue of being compliant with the state medical program. So what they've essentially done is incorporated these state programs into reference by reference. Now, there will be restrictions for like your company. There might be the the DEA might be particularly concerned about chain of custody, security, or cameras, record keeping, background screening for your employees, like they may be concerned with that. But it's that to the actual like approval of those drugs, uh the way that the federal government is handling that is they they they don't they aren't really requiring FDA approval. Um they're just saying if you're compliant in a if so if your product complies with California state law and you are a licensed and good standing entity in California, right now the federal government has said you are you know you are schedule three manufacturer, your schedule three distributor, your schedule three dispensing, as long as you register with them. Yeah, it is interesting.

SPEAKER_03 1:05:26

Well, I mean, I think I think what's important with all this is you know, like Jesse and I, you know, we talk about this a lot is trying to think about not what's just happening, but and then what, right? And and like this is just uncovering like just because we get to schedule three, obviously massively historically important to be progressing in that way, but it introduces a lot of other elements that are still murky and still living in with some uncertainty, you know. Understand, like FDA is still for you know keeping the baby in the corner kind of thing. But and maybe that's why we saw descheduling law proposed today is like this is a a wake-up call to Congress to get your shit together and finally do something. And because the cleanest thing for this industry to thrive is is got to be descheduling. Because I just I just hear this rescheduling. I'm just like, you know, for capital to move, for people to start wanting to be back in this industry. Obviously, they want tax clarity, they want regulatory clarity. And I feel like, you know, if we get final rule and 280 E stops for all of the industry, not just for medical, but we still have this overhang of these challenges in the courts and what if they prevail? And then what does that mean? Does that then go retroactive back? And like, you know what I mean? I'm just trying to put my put my hat on as if I'm an external capital group looking at cannabis and I'm seeing this landscape. Does final rule actually give me certainty that this is there is permanence here, or is there still some risk here that is, you know, this kind of court overhang? Uh, versus, like you said, if Congress would just do what the American people have wanted now for quite a long time and just deschedule it, we would we would be free of all these these issues. Is that fair?

SPEAKER_00 1:07:19

Yeah, or if you get FDA and DEA to agree with you and just re-deschule. Like they they could do it, they they could deschedule if they wanted to, they haven't. Right. Uh, but yeah.

SPEAKER_03 1:07:30

It seems like a step, that's a huge step from going from schedule one to just go right to deschedule. Though I do think, I mean, I understand.

SPEAKER_02 1:07:37

I'm just politics or no, I've I'm shaking, I'm shaking my head the wrong way, working. I'm I'm agreeing with you. I think it's it's an uh that's what we should do, but I think that jump is unrealistic.

SPEAKER_03 1:07:46

Yeah, exactly. Yeah. And and and I did even hear right in the rulings or in the hearings, there was wasn't there a physician or someone that did acknowledge that cannabis or marijuana has less harms than alcohol.

unknown 1:08:02

Yeah.

SPEAKER_03 1:08:02

Less addictive. And obviously we know these things, but the fact that it was in the hearing, having, and I actually I think Sam was the one that was pushing back against this of like they had a descheduled substance being in the hearings, it was like conflicting. And it's like I actually thought that was a very powerful thing because to admit something like that in in court, I thought, you know, well, does that open that door? Or to your point, Christian, are they so anchored on our position is rescheduling, and that's where we're holding.

SPEAKER_00 1:08:34

I I'm trying to fight find the political way to say it, this the politically correct way to say this.

SPEAKER_02 1:08:39

I I would not attribute I told I told I t so I told someone to fuck off earlier. We're not doing political stuff. I don't know.

SPEAKER_00 1:08:48

Let's let's get the straight answer here. I don't know if they know if I honestly I don't know if they if all of these permutations have really been thought out by the administration. Like I'd I'd not I'm not sure that they're like when when you're thinking about when you're talking about this, I'm not sure everyone anyone has actually gone through these and like actually like this is organized, cogent uh like political action. I think part of this is red meat because we're going into midterms. Part of this is something where it's like we have to have some type of pressure release because uh the law has become has become so like utterly ridiculous in how it's being handled nationally. Uh, and part of this is like, you know, you know, Trump, Trump taking a win. Like Trump being like, okay, we're gonna do this. I'm I'm gonna actually make this happen. And he he you know, he he does have a tendency to sometimes uh you know shoot and then aim uh on some of this stuff. I'm not that and I don't want to say like DEA and none of these people, like the the obviously a lot of thought went into this. Like this is very but like what you're talking about are like so many permutations, it's such a complicated situation. And there might be you know think tanks or particular people in some of these agencies that have thought about pieces of this, but how the whole thing fits together, I really don't know if I don't think that there's like this grand plan about how all of this fits. And even if there is, we have elections every two years and it's gonna take more than two years, like any of those things can be accelerated or disrupted.

SPEAKER_03 1:10:26

And I mean, I think one thing that's a minor thing to, but I'm I'm keeping on my radar is if they don't get this final rule done and Massachusetts voters actually vote to repeal their adult use market, what's that gonna weigh on the calculus of the of the TEA's position? You know what I mean? So like there's like a window where I think you know, get it done, but does that give more ammo to Sam in the courts? Like maybe.

SPEAKER_00 1:10:52

I mean, but like D it it's possible, but so this is actually kind of interesting. We talk about something that specifically happened in in the court that like I mentioned the brute force thing, but I didn't really like to really give any kind of flesh that out. But um DEA treats those types of things as irrelevant to what they are, and they're arguing in front of the judge that what you just described is irrelevant. So specifically they treat like how state governments, specifically adult use state programs, have comported themselves. They think that's totally irrelevant because the case is about whether or not there is um an accepted medical use for marijuana. So, you know, you compare uh you you can have a state that's and and there were examples of kind of you know some not awesome things happening, uh, you know, as far as uh certain states with that are kind of lax on certain safety requirements or diversion prevention, and it is what it is. Uh DA's position is we don't care, that's diversion. Like there's diversion of fentanyl. That doesn't mean fentanyl doesn't have an approved medical use. Marijuana has a medical use. So same thing with uh, I mean diversion in particular. FDA, there I I would say one of the weakest parts of their analysis probably is diversion. Just saying that, like as someone who watched them, like their in their explanation for diversion was basically looking at kind of like federally involved like NIDA facilities and how much diversion there is. And they like there was no analysis as to like or very, very little analysis of like real diversion in like these state medical programs. But DEA's position is that doesn't matter. There's diversion for every drug that doesn't affect medical use. So back to like one of your first questions. That's why DEA keeps bringing back the medical, because it helps them push away things like diversion or well-run state programs, because they're like, yeah, that's that's all true. It's debatable, but it's true. You know, whatever. That doesn't, even if it, even if you accept everything you say, which we don't concede, it doesn't matter. That's their position.

SPEAKER_03 1:13:02

No, that's that's a great point. Um, and you did mention that earlier. And it's good to bring it up again because it's easy to get like too far down and get lost in it, and then that brings it back. Because I mean, at the end of the day, the states just create created these programs because the federal government was not willing to move at that time. And so they wanted to have these things, and then we created this funky thing where we had medical, and then we created adult use. Like those were all created because the federal government was not formally or was, you know, historically had not been in favor of of doing this. So um, which created all these, all this, you know, nuance and uh, you know, and the point about you know, diversion, yeah, that's that's a regulatory and enforcement question. That's not around a medical value perspective.

SPEAKER_00 1:13:48

Yeah, I mean, uh the opposition were basically trying to make the argument that like it's so pervasive that it becomes a public health issue rather than kind of like a criminal or like administrative issue. And you know, like I said, it the DA's position is what the DEA's position is. And um, some of that, you know, they provided expert testimony on that, they provided a lot of information. But like uh, I mean, they they had the sheriff from um Humboldt County come out and they gave very compelling testimony about organized crime in California and how like they their their county, there's certain parts of their county are a mess trying to deal with this stuff, and then it's very arduous and the the system needs to change. But like DEA's like, yeah, I we get it, but that doesn't impact our analysis though.

SPEAKER_02 1:14:38

So yeah, interesting hearing the Humboldt County Sheriff talk about organized crime, but that's a much longer conversation.

SPEAKER_00 1:14:48

The phrase murder mountain was said like probably 10 times during his testimony.

SPEAKER_02 1:14:56

So Chris, so so Christian, just to kind of wrap things up, we covered a lot of great ground today. It's been uh been a really really helpful show. When you kind of reflect on the the time that you spent at the hearings and what what's your single biggest takeaway you would leave listeners with?

SPEAKER_00 1:15:13

Um I think that having DEA witnesses talk about the entourage effect and DEA witnesses talking about medical use and DEA talking, uh calling witnesses who are testimony testifying about uh how patients can affirmatively be helped off of opioids with marijuana. Getting this stuff on the record, the federal government taking these positions is uh extreme it is the most valuable thing from all of these. It is more valuable than the outcome. The federal government building a record for why it believes is something that they can't ever take back. They're locked into this now. So it was a I mean, the last two and a half weeks are probably the uh I mean, definitely since the Cole memorandum, the most important, you know, federal policy shift that we've had because once you put this out there, you cannot take it back. Um so the opposition is gonna do what the opposition does. The opposite I will say that like opposition lawyers, some of some of them were terrible, but some of them were incredible. Like uh one of Sam's lawyers uh uh give credit to where he's due, he's the best litigator I've ever seen in person. Um he had this when I mentioned that he got the D the uh DA witness to concede on the record that marijuana would not pass the five factor test. To do that, he got through about 30 minutes of bit of concentrated. It was like the one time DEA actually like fought, they fought this guy for 30 minutes. I've never seen someone break through objections and be able to get a malloc moment like that. It's very impressive. So their lawyers are excellent, but some of their lawyers are excellent. Um but the the the fact is the most powerful ally that you could ever hope to have is the federal government. Uh US federal government is now the ally that we're um we have mutual interest in this particular area, and it it's incredible to see them take the positions that they've seen, I mean that they've taken.

SPEAKER_02 1:17:15

Um so yeah, what a massive shift. There's a great book uh called Smoke Signals, which uh Micah, yeah, our CEO. Did you have you read that?

SPEAKER_00 1:17:26

Yeah. I read that, yeah. I read that back in the day.

SPEAKER_02 1:17:30

Yeah, it's a bit, yeah, it's a bit dated now. Um I don't remember when when it when it when it when it came out. It was I think it I think it was before California, even uh adult use came out that the that the book the book was written. But I bring it up, yeah. It's called Smoke Signals. Uh Hirsch, one of our favorite guests, Hirsch, Hirsch Jane has read it too and liked it a lot. And yeah, I bring it up because a great book. Everyone should read it if you're into cannabis stuff and you're a nerd in that regard. The history of it is just amazing. But the biggest thing I took for the book was for thousands of years, you know, the people have wanted cannabis, and the government has tried to suppress it or oppress it. And it goes back to not even just the United States, it goes back so much further than this. Like there's this great plant that people continually want access to. And for hundreds of years, maybe thousands of years, we're trying to stamp it out, stamp it out, get, you know, get rid of it, get rid of it. Take this, don't take that, take this, don't take that. But people keep saying, I want this, I want this. It even goes back to you probably remember, Christian, the jazz musicians and all that sort of stuff, then into the beatniks, then into the AIDS movement in San Francisco. And over and over again, people want access to the plant, period. Some for really serious medical medical conditions like my dad that helped his change his life, some just for people like me, who I'd rather smoke a bit of weed at night than drink or take any pills or do any things, do any things, you know, do things like that, and to each their own. But for so long, we've taken that choice away from people. And that's a you know, I think, you know, I think it's fundamentally an inhumane thing to do. And I think it's one of the biggest things society has gotten wrong is by not giving us that choice to do something different. Hey, man, may not be for you, Mr. Mr. Politician. Mitch McConnell, don't want to get stoned, awesome, don't do it. Usually I don't want to drink, awesome, I don't do it. But I'm not there, I'm not out there with signs and trying to take take that away from me, even though alcohol is a million times worse for you. I would tell people not to drink, but hey, if they want to do it and kill themselves, feel bad, all that sort of stuff. That's a trade-off. That is a hundred percent their choice. And it's it is so important to point out that there is that shift going on. And the shift is just acknowledging a slight portion of reality. I don't even think that's acknowledging the full reality of the situation because I think we need much more medical information, not just on THC, but what about you know, CBN? What about THCV? What about CBG? Um, this great guy at um at Humboldt who helped help to help me out, put together a custom tincture for my dad of like THCA, CBGA, and maybe C B C A. I hardly know what those things are. And I've been the cannabis industry passionately for 10 years, and I'm just learning about these acidic forms of cannabinoids that may help people. So there's so much out there from the basic guy who just wants to smoke a joint at night to relax to really complex situations like you know, chemotherapy and somebody you know in cancer, where guys at work for my dad, just in case this is sadly he never got to take it. But what was what was given to my dad and formulated for my dad was a couple of tinctures. One was 50% CBD, 50% leaf GMO rosin for that you know, balanced THC CBD, bunch of great cannabinoids and you know terpenes and different things in the you know GMO portion that are helpful. Then on top of that, a separate tincture with these acidic forms and all of that works together to accomplish something. Do you guys know how hard that was for me to find out? Do you know how many conversations I had? Do you know what I went through to put that together? Thank God I worked for Leaf and you know, could get the rosin. Then I sent it to somebody else who did the formulation, then it was sent over here and eventually made it back to me. And that's just, you know, one example of the way that we can help people that's super complex. Then there's a simple things, guys just like me and Morgan who like to smoke a little bit of weed at night. And for so long, we've wanted to do that. And for so long, someone else is out there not just saying, I don't think you should do that. If you have an opinion, you say I don't think you should do that, but they're making it fucking illegal to do that. And yeah, I think your point is so important to wrap on uh here, Christian, because finally, you know, someone is acknowledging some of these basic facts. And again, I don't think they're even acknowledging the full truth. It's moving way too slowly. We want to get the descheduling. But I guess, Christian, when I look at the end, you know, we'll see what happens. But it feels like, you know, in some ways, like you're saying, there's maybe a huge win embedded here. And hopefully we get the financial part where 280E goes away, you know, that hopefully that goes back a few years retroactive on the treasury stuff. But I think your point there, Christian, is fantastic about the government finally realizing some of these things that all of us know.

SPEAKER_03 1:21:57

Yeah.

SPEAKER_01 1:21:58

Absolutely.

SPEAKER_02 1:21:59

Freedom 250. So let's wrap things up, boys. Thank you to FlowHub for making today's show possible with cannabis rescheduling, moving towards moving towards the goal line. The industry is continuing to evolve, evolving super quickly. And you operators out there, you have to be ready for that change. Man at leaf, we have never been busier adapting to these changes, whether it's on the retail front, the wholesale front. We didn't even get into the DEA stuff, but all of that is super fascinating too. But guys, if you've got a dispensary, you know, Morgan talked about these AI hooks. If you've got, you know, one store, you got 10 stores, you got 50 stores. It's really just a fantastic time to be looking across your tax stack and figure out what you could be doing differently. So just take take a few minutes, guys. Jump over to FlowHub.com and schedule that demo today. So thank you for for to FlowHub for continuing to support the show. We really appreciate it. Morgan Paxia, always a pleasure. Christian, thanks for joining the show today. Really great to meet you. Hope we stay in touch.

SPEAKER_00 1:22:53

Thank you, guys.

SPEAKER_02 1:22:55

And we'll see you guys again in two weeks. We're working on a show with a big operator. So we'll see if uh that works out. But Rain or Shine, we'll see you guys back here in two weeks. I always appreciate you joining us. If you're on YouTube, that channel continues to grow. I think we're pushing 360 subscribers over there. It is the biggest uh growth engine for us. So go check out YouTube. If you're on YouTube, do me a favor, like, subscribe, and if you're really a fan, hit that bell for the notifications so you know when new shows come out. That's it, guys. We're out of here. The views expressed this podcast are provided for informational purposes only. Nothing I said, Morgan said, or Christian said, should be considered research or or or recommendation. All investing involves risk. You're a cannabis investor, you know that, including the loss of principle.