What Rescheduling Marijuana Means For The Cannabis Industry

Summary

In a significant reform, the US Drug Enforcement Administration (DEA) is set to reclassify marijuana from a Schedule I to a Schedule III drug, aligning it with substances like ketamine and anabolic steroids. This move follows President Biden's request for a review of marijuana's federal scheduling and the Department of Health and Human Services' conclusion that cannabis has legitimate medical benefits. The change could reduce the tax burden on cannabis companies, which currently face an effective tax rate of around 80% due to punitive measures. While the proposal is not final and requires further approval, it has already energized the cannabis industry, with some stocks surging by 25%. However, the reclassification does not resolve banking issues for the industry or allow US-based companies to list on major stock exchanges. It also raises questions about federal oversight and the need for further regulatory clarity.

Takeaways

• 📜 The US Drug Enforcement Administration (DEA) has proposed reclassifying marijuana from a Schedule I to a Schedule III drug, marking a significant change in marijuana reform.
• 🔍 Schedule III classification includes drugs like ketamine, Tylenol with Codeine, anabolic steroids, and medication for opioid use disorder, buprenorphine.
• 🚀 This move is the most substantial shift since marijuana was made illegal by the Controlled Substances Act in 1970.
• 🇺🇸 President Biden requested a review of marijuana's federal scheduling in October 2022, and by August 2023, the Department of Health and Human Services (HHS) recommended reclassification.
• 💬 Biden emphasized in a State of the Union Address that no one should be jailed for using or possessing marijuana.
• ✅ The proposal to reclassify marijuana has energized the cannabis industry, with some stocks rising by 25% shortly after the announcement.
• 💰 The reclassification could greatly impact taxes for cannabis companies, as they would no longer be subject to the punitive tax measure under U.S. Code 28E.
• 📈 The effective tax rate for most cannabis companies is around 80% of gross revenue, which could change with the reclassification.
• 🏛 The change to Schedule III is seen as a step towards federal legalization and could facilitate further cannabis reforms.
• 🏦 Despite the reclassification, it does not resolve banking issues for the cannabis industry or allow U.S.-based companies to list on major stock exchanges.
• ❓ There are still unanswered questions regarding the impact on state-licensed cannabis companies and whether they need new licensing to comply with future regulations.

Q & A

What is the historic move by the US Drug Enforcement Administration regarding cannabis?

The US Drug Enforcement Administration (DEA) has decided to end its ban on cannabis by reclassifying it from a Schedule I narcotic to a Schedule III drug, which is considered less dangerous.

What is the current status of marijuana under the Controlled Substances Act of 1970?

Under the Controlled Substances Act of 1970, marijuana is currently classified as a Schedule I narcotic, alongside drugs like heroin and LSD.

What is the significance of reclassifying marijuana to a Schedule III drug?

Reclassifying marijuana to a Schedule III drug would mean that it is recognized as having some legitimate medical benefits and is less dangerous than Schedule I substances. This is the most significant change in marijuana reform since it was outlawed in 1970.

What was President Biden's request regarding the scheduling of marijuana in October 2022?

President Biden asked the Department of Health and Human Services and the Attorney General to expeditiously review how marijuana is scheduled under federal law.

What was the conclusion of the Department of Health and Human Services' review on marijuana?

The Department of Health and Human Services concluded that cannabis has some legitimate medical benefits and recommended to the DEA that marijuana be reclassified as a Schedule III drug.

What did President Biden declare in his State of the Union Address regarding marijuana?

President Biden declared that no one should be jailed for using or possessing marijuana.

What is the current status of the proposal to reclassify marijuana?

The proposal is not yet final. It must first clear the White House Office of Management and Budget and undergo a public comment period.

How did the news of marijuana reclassification impact the cannabis industry?

The news immediately electrified the $28 billion cannabis industry, with some pot stocks going up by 25% within hours of the Associated Press report.

What is the most profound impact of the DEA's policy change on licensed cannabis companies?

The most profound impact would be on taxes. The move from Schedule I to Schedule III would mean that cannabis companies will not have to file under US Code 28E, which bans most deductions for drug traffickers, effectively lowering their tax rates.

What is the current federal tax situation for cannabis companies under Schedule I classification?

Under Schedule I classification, cannabis companies are subject to US Code 28E, which is a punitive tax measure that bans most deductions, resulting in an effective tax rate of around 80% of gross revenue.

What is the position of Josh Schiller and David Boy in their lawsuit against Attorney General Merrick Garland?

They are suing to challenge the federal prohibition of marijuana and the government's ability to interfere with state-regulated cannabis programs, advocating for no federal oversight over state-licensed cannabis companies.

What does the reclassification of marijuana to Schedule III not address?

The reclassification does not provide a legal fix to the banking issues that have long plagued the industry, nor does it allow US-based cannabis companies to be listed on the New York Stock Exchange or NASDAQ. It also leaves unanswered questions about the need for state license cannabis companies to obtain new forms of licensing or whether recreational stores can continue to operate.