Cannabis Drug Companies Eye IPOs and Private Funding Following U.S. Rescheduling to Schedule III
Key Insights
The U.S. Department of Justice (search) rescheduled FDA-approved cannabis medicines and state-regulated medical marijuana products to Schedule III on April 23, easing banking restrictions and tax burdens for companies developing cannabis-based therapeutics.
Multiple biotech companies including Ananda Pharma (search), IGC Pharma (search), and Avicanna (search) are now pursuing private funding rounds and considering IPOs, with some planning to raise between $10-50 million within the next year.
The rescheduling has reduced stigma among mainstream investors and financial institutions, while lowering development costs by simplifying research logistics and trial design for cannabis-based drug development.
The U.S. Department of Justice (search)'s decision to reschedule certain cannabis-based medicines to Schedule III has triggered a wave of fundraising activity among biotech companies developing marijuana-derived therapeutics, with several firms now pursuing IPOs and private funding rounds that were previously difficult to secure.
Acting Attorney General Todd Blanche signed an order on April 23 placing FDA-approved marijuana products and products sold under qualifying state medical-marijuana licenses into Schedule III, while launching an expedited process to consider broader rescheduling. The move shifts cannabis from Schedule I - which includes heroin and LSD for drugs deemed to have no accepted medical use - to Schedule III, placing it alongside drugs such as Tylenol with codeine, ketamine, anabolic steroids and testosterone.
Immediate Funding Activity Emerges
The rescheduling has already prompted concrete fundraising plans among cannabis drug developers. Ananda Pharma (search), which is developing a cannabis-based treatment for endometriosis (search)-related pain, is preparing to raise $10 million to $20 million in private funding within six months following the rescheduling.
"We have calls lined up already with a VC investor interested in endometriosis (search) and with a significant U.S.-based family office," said Chief Executive Melissa Sturgess. The company plans to use the funding to accelerate U.S. regulatory engagement and manufacturing of its CBD drug that does not contain the psychoactive compound THC.
IGC Pharma (search), which is conducting mid-stage testing of a low-dose THC liquid to treat agitation in patients with Alzheimer's disease (search), is weighing raising $50 million toward the end of the year. CEO Ram Mukunda noted that uncertainty around timing and limited access to banking services had previously kept some institutions on the sidelines despite investor interest. The company has estimated the Alzheimer's agitation market at $1 billion to $10 billion.
Banking and Investment Barriers Reduced
The rescheduling addresses several practical obstacles that have hindered cannabis drug development. Brett Schuman, co-chair of the cannabis practice at Goodwin law firm, explained that some banks have covenants in loan and credit agreements preventing clients from investing in cannabis, with some constraints applying specifically to Schedule I drugs.
"We have heard directly from VCs and other investors that rescheduling will get the capital flowing again," Schuman said.
BRC Therapeutics (search) CEO George Hodgin described the reclassification as reducing reputational barriers among traditional life sciences investors. The company, which is developing a treatment for aromatase inhibitor-induced arthralgia (search) - a side effect of some breast cancer (search) treatments - said the reclassification is already drawing attention to its work.
Research and Development Cost Reductions
The policy change is expected to significantly lower development costs by removing logistical hurdles that companies previously faced in sourcing and transporting study drugs. Under Schedule I restrictions, companies had to cultivate hemp to extract small amounts of THC or run trials outside the United States.
"A room full of marijuana plants could generate enough THC for thousands of patients," IGC's Mukunda explained. The company previously had to grow "acres and acres" of the more leniently regulated hemp to achieve the same result.
Avicanna (search) CEO Aras Azadian noted that the Schedule I designation made it "quite difficult" to run U.S.-based studies, pushing the company to conduct much of its early research in Canada. The company, which is developing a cannabis drug for rare seizure disorders (search), now sees a path to IPOs on major exchanges.
Limited Market Precedent
Currently, Jazz Pharmaceuticals remains the lone U.S. drugmaker with an approved cannabis-derived therapy - Epidiolex for epilepsy (search) treatment. This scarcity helps explain why traditional pharmaceutical investors have largely avoided the sector until now.
The rescheduling provides companies with a federal pathway to enter U.S. markets more strategically and partner with local companies, though challenges remain in aligning new federal cannabis policy with varying state regulations.
Ongoing Regulatory Considerations
While the April 23 order provides immediate relief for qualified medical cannabis products, recreational cannabis remains in Schedule I. The Department of Justice has scheduled an expedited DEA hearing beginning June 29 to consider broader marijuana rescheduling.
The order also directs the IRS to consider retrospective relief from Internal Revenue Code Section 280E for qualified state licensees and instructs the DEA to fast-track registrations, though legal advisers note that card networks and many banks are likely to move cautiously as the regulatory landscape continues to evolve.