Little Green Pharma rejoices at US recommendation to reclassify weed as less dangerous

Word on the street is that marijuana in the US might soon be classified as not as threatening as LSD and heroin, thus allowing cannabis companies like Australia-based Little Green Pharma (ASX: LGP) to chart their entry. 

Sources in the US Drug Enforcement Administration have confirmed the regulator will recommend reclassifying cannabis from Schedule I to Schedule III. Being in Schedule III would mean that weed would now be considered a “less dangerous” drug. This would acknowledge that marijuana has less potential for abuse than some of the nation’s most dangerous drugs. That said, it would not make marijuana legal for recreational use. It would just ease the restrictions on prescribing it. 

The move follows recommendations by the Department of Health and Human Services to the DEA in August 2023, recognising the medical benefits of cannabis. The implications of the proposed rescheduling include the removal of s280E taxes. As per the s280E, businesses that deal with drugs classified as Schedule I or II (like, currently, marijuana or cocaine) are not allowed to subtract the normal costs of running their business (such as rent, salaries, or supplies) when they calculate their taxable income. This rule can lead to higher taxes for these businesses.

Therefore, the reclassification is positive news for medical cannabis businesses like Little Green Pharma. 

The news has resulted in a positive re-rating of North American cannabis companies with ETFs targeting the US cannabis industry. Given the historical mirroring of the North American markets, this sector re-rating is expected to flow through to other cannabis companies, including LGP.

In the March quarter, Little Green Pharma’s revenue of $7.3 million was up 35% on the previous quarter. The Company also recorded cash receipts of $8.1 million, up 53% on the previous quarter. Cash receipts increased through the March quarter, with LGP receiving its $5 million R&D rebate.

Since its introduction in late December 2023, CherryCo has contributed nearly $2 million in revenue, helping drive a 57% increase in flower sales and a 27% increase in total Australian sales from the prior quarter. The CherryCo Little Buddies range comprises six cannabis flowers featuring smaller flowers from high-quality batches but at a lower price point and in a larger (15g) bag.

In France, LGP and another company are now the sole suppliers to French patients during the nine-month post-trial transitional period. On April 1, 2024, Germany removed cannabis from the Narcotics List, thus improving LGP’s pathways into the country. 

The Company saw encouraging patient demand for LGP flower products in the UK and Switzerland, resulting in further orders from distributors. It also supplied its first shipment of Desert Flame flower to its Polish distribution partner, Medezin, with the product being well received in the market.

LGP finished FY24, ending March 2024, with a positive operating cash flow of $500k.

Little Green Pharma has two global production sites for the manufacture of its own-branded and white-label ranges of GMP-grade medicinal cannabis products: a Danish production facility with a potential nameplate capacity of over 30 tonnes of cannabis biomass per annum and a premium indoor GMP production facility in West Australia specialising in premium hand-crafted cannabis strains.

With the rescheduling of cannabis in the US, LGP is forecasting the US to be its next stop. This rescheduling would represent the most major change in global cannabis regulation ever, coming on the heels of Germany’s recent decision to legalise cannabis last month.