The Blubber

The U.S. Health and Human Services Department has suggested a reclassification of marijuana to a lower-risk drug category, a move that could potentially ease restrictions on the cannabis industry, according to a Drug Enforcement Agency (DEA) spokesperson's statement to CNBC on Wednesday.

Currently categorized as a Schedule I drug under the Controlled Substances Act, marijuana is considered to lack accepted medical use and possess a high potential for abuse. Despite being legalized for recreational purposes in nearly half of the U.S. states, its federal classification alongside substances like heroin and LSD has hindered the industry's expansion.

As the cannabis industry saw a surge in sales during the pandemic, it is now facing a decline due to dwindling investor interest and capital availability. Stringent federal regulations have also denied most banking services to the industry and restricted cross-state trading, leading to an oversupply of cannabis in various states and a decrease in prices.

A federal reclassification could potentially broaden the market for marijuana, which is already a multibillion-dollar industry in the U.S. and a significant crop in newly legalized states.

News of this recommendation led to a rise in the shares of several cannabis companies, including Canopy Growth, Tilray Brands, and Cronos Group. The Health and Human Services Department proposed that marijuana should be reclassified as a Schedule III drug under the Controlled Substances Act in a letter to DEA officials. Schedule III drugs have a moderate to low potential for physical and psychological dependence.

While the DEA holds the ultimate authority to reschedule controlled substances, it will now initiate a review process for marijuana in light of this recommendation.