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Is the U.S. Getting on Board With Cannabis Legalization?

Cory Renauer, The Motley Fool

The World Health Organization made waves earlier this year by publishing its first marijuana review. The WHO had lots to say, including a call to place cannabis in a less restrictive schedule of the 1961 United Nations Single Convention on Narcotic Drugs.

It might not seem like it, but bureaucrats in Washington, D.C., actually want to know what Americans think about the WHO's recommendation. More specifically, the Food and Drug Administration has reopened the comment period regarding the WHO's rescheduling recommendation, along with other marijuana legalization issues.

A line of dice spells out the word illegal, with a hand separating the I and L from legal.

Image source: Getty Images.

In spring, the FDA's request for feedback received 1,939 comments, but the agency postponed voting on cannabis-related recommendations until a later date. The agency recently reopened the feedback channel and will keep it open until Sept. 30.

The agency will probably hold a cannabis rescheduling vote shortly after closing the door on comments again. If you're holding cannabis stocks but aren't quite sure what to expect, there are at least four things you need to understand about the FDA's attitude toward cannabis and the agency's role in this burgeoning industry. 

1. The status quo

The Comprehensive Drug Abuse Prevention and Control Act of 1970 created five schedules, with different levels of control. Marijuana was placed in Schedule I, the most restrictive, early on, and it's still there, with some minor exceptions.

There have been a few drug approvals for products that contain synthetic THC, the cannabinoid that gets people high, but they haven't been very successful. Although it's difficult to prove, THC seems far less tolerable and less effective when administered without its usual entourage of cannabinoids and other components. 

More recently, the FDA approved the marijuana-derived cannabidiol (CBD) tincture called Epidiolex from GW Pharmaceuticals (NASDAQ: GWPH). If you haven't heard, CBD is the non-intoxicating cannabinoid that seems to reduce inflammation, surface pain, and insomnia without an intoxicating effect. The FDA gave Epidiolex approval to treat severe forms of childhood epilepsy only after the company proved it was safe and effective in a series of clinical trials.

Epidiolex is officially approved to treat severe epilepsy, and that's it so far. Trying to market it to any other patient group is expressly forbidden. It's also important to note that there are hundreds of different CBD brands, but Epidiolex is the only one that can claim to have any medical benefits whatsoever. 

Man inspecting pill bottles.

Image source: Getty Images.

2. The FDA doesn't mess around

In July, America's largest vertically integrated cannabis company, Curaleaf (OTC: CURLF), received a lengthy warning letter from the FDA that threatened an unlimited seizure of property and closure of facilities. The agency gave the company 15 days to produce a plan, or an argument, to address violations of the Food, Drug, and Cosmetic Act.

A warning letter from the FDA isn't the same as a congressional subpoena. The agency can, and often does, shut down non-compliant operations like a boss.

Curaleaf was marketing its CBD products as dietary supplements, which isn't going to work for anyone. One incontrovertible reason has to do with the recent approval of Epidiolex. Since CBD is an active ingredient in an FDA-approved drug, anything containing CBD can't be a dietary supplement.

Previous FDA approvals of dronabinol-based therapies probably mean THC-containing products won't be marketable as dietary supplements either. That means legalization of marijuana won't allow Curaleaf, or its peers, to mention the perceived health benefits consumers or their pets might receive from any THC-containing products.

While Curaleaf tried to pretend its products were dietary supplements to avoid regulation, CV Sciences (OTC: CVSI) is taking a halfway approach. This June, CV Sciences boasted about a successful study with real people that were split into random groups that received a placebo or the company's PlusCBD Oil. Patients given CV Sciences' capsules were significantly more likely to report improvements in sleep quality than those given capsules full of olive oil. 

3. The right way forward is long and expensive

Despite convincing evidence from a clinical trial, CV Sciences won't be sending the FDA an application to market PlusCBD Oil as a sleep aid in the foreseeable future. That's because the company would need to spend money it doesn't have to assemble mountains of data from a long list of sources, including lengthy safety studies with a variety of animals before applying to begin trials with humans. That's a big reason GW Pharmaceuticals spends at least $100 million each year on research and development and CV Sciences is still in a seven-digit zone.  

The FDA's approval of Epidiolex was preceded by several approvals of drugs containing synthetic THC, but so far, the agency hasn't even reviewed a product with THC from the plant itself. Once you see Curaleaf or one of its peers mention an investigational new drug application, then you'll know they're serious about trying to market cannabis products as medicine.

Marijuana in a map of the continental U.S.

Image source: Getty Images.

4. Not the only decider

Unfortunately for cannabis companies that aren't focused on CBD, the Drug Enforcement Administration is responsible for setting controlled substance schedules. Determining a substance's potential effects isn't exactly within the DEA's purview, so it depends on the FDA for help choosing appropriate schedule positions for each drug.

It probably seemed like a good idea at the time, but the process creates a Catch-22 for THC-containing cannabis research, because as a Schedule I substance, it's nearly impossible to conduct meaningful research on cannabis products. The DEA provides academic researchers with well-understood cannabis strains from preordained sources that help them get around Schedule I rules, but there still isn't a clear process that will allow companies to run FDA-compliant clinical trials with their own products.

What to expect

In 2016, the DEA would have rescheduled cannabis if the FDA had given the green light. Since Schedule I restrictions have severely limited cannabis research, the agency refused to issue an opinion until it has more measurements related to potential safety issues and habit formation to base an opinion on.

While it seems as if the DEA, the cannabis industry, and the FDA are stuck together in a neverending bureaucratic nightmare, the DEA recently took steps to register additional marijuana growers. In January, there were 542 scientists registered by the DEA to conduct marijuana research. That's not a lot, but it's 40% more than there were two years earlier.

The odds that the FDA will consider research conducted over the past few years sufficient to place cannabis in a less restrictive schedule aren't great, but they're a lot better than they were a few years ago.

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com