Federal Marijuana Rescheduling: Implications and Impact

In a significant move towards the potential reclassification of marijuana, the U.S. Drug Enforcement Administration has proposed moving cannabis from its current Schedule I classification to the less tightly regulated Schedule III. This shift, if finalized, would recognize the medical uses of cannabis but would not legalize it for recreational use. The proposal is currently undergoing review by the White House Office of Management and Budget, and it will then enter a public comment period and review by an administrative judge, a process that could take a considerable amount of time.

The Schedule I classification places marijuana in the same category as drugs such as heroin, LSD, quaaludes, and ecstasy, all considered to have a high potential for abuse and no accepted medical use. The proposed change to Schedule III, which includes drugs like ketamine, anabolic steroids, and some acetaminophen-codeine combinations, acknowledges the medical applications of cannabis and would subject it to different rules that allow for some medical uses and federal criminal prosecution of unauthorized trafficking.

This rescheduling would not immediately result in the legalization of recreational cannabis nationwide. Schedule III drugs are still controlled substances, subject to various regulations that would likely not align with the current state-licensed medical marijuana programs or recreational cannabis markets. However, it is not expected to impact the existing state-licensed medical marijuana programs or the legal recreational cannabis markets in 23 states.

One of the most significant implications of this shift is the potential for more accessible and comprehensive research into the medical benefits of marijuana. Currently, conducting authorized clinical studies involving the administration of marijuana has been challenging due to its Schedule I status, creating a Catch-22 situation where calls for more research are met with barriers to conducting it. Rescheduling to Schedule III would theoretically make research easier, although the specifics of how this would affect studies involving marijuana from state-licensed dispensaries and the oversight of the Food and Drug Administration (FDA) remain to be clarified.

The proposed change would also have a significant impact on the cannabis industry's tax obligations. Under the federal tax code, businesses involved in "trafficking" in marijuana or any other Schedule I or II drugs cannot deduct rent, payroll, or various other expenses that other businesses can write off. This has resulted in a tax rate that can exceed 70% for many cannabis companies. Rescheduling marijuana to Schedule III would remove this deduction restriction, potentially reducing cannabis companies' tax burdens and allowing them to compete more effectively with illegal competitors.

However, the rescheduling would not directly affect another significant challenge faced by the cannabis industry: access to banking services. Federal regulations have made banks wary of dealing with businesses in the cannabis industry, particularly in terms of loans. The industry has been looking to the SAFE Banking Act to address this issue, but this legislation has yet to be passed by the Senate.