In late 2023, multiple governors sent another push for the Biden administration to reschedule marijuana from Schedule I to Schedule III of the Controlled Substances Act by the end of the year. But since the 2024 presidential race is coming up, reform progress may be waiting in line at the polls with the rest of us. However, that doesn’t stop many in the industry from observing the various impacts that re-classifying the substance would have across the nation.
As of now, marijuana is still a Schedule I drug, maintaining its position in the same group as harmful and dangerous drugs such as heroin and LSD. But the Drug Enforcement Administration (“DEA”) does have the recommendation from U.S. health officials to make a change.
Scheduling Under the Controlled Substances Act
The Controlled Substances Act (“CSA”) places all substances which were in some manner regulated under existing federal law into one of five (5) schedules. The schedule assigned to each substance is based on its medical use, potential for abuse, and safety or dependence liability.
Schedule I substances are the most dangerous of substances due to factors like the propensity for misuse or abuse, scientific evidence, public safety risks, and the history and current patterns of abuse. These substances also have no recognized medical value. Common examples of substances under this category are drugs like heroin, LSD, ecstasy, and peyote.
Schedule II drugs, substances, or chemicals are drugs with a high potential for abuse, with use potentially leading to severe psychological or physical dependence. Some examples include drugs like methamphetamine, Adderall, and fentanyl.
Schedule III substances have moderate to low potential for physical and psychological dependence. Common substances or drugs under this category include Tylenol with codeine, ketamine, anabolic steroids, and testosterone.
Marijuana is currently a Schedule I substance, but the DEA will use eight (8) factors to help decide to either reschedule or deschedule marijuana altogether. The factors the DEA will weigh are:
- The actual or relative potential for abuse;
- Scientific evidence of its pharmacological effect, if known;
- The state of current scientific knowledge regarding the drug or other substance;
- Its history and current pattern of abuse;
- The scope, duration, and significance of abuse;
- The risk, if any, there is to the public health;
- Its psychic or physiological dependence liability; and
- Whether the substance is an immediate precursor of a substance already controlled under the CSA.
There are a number of possible challenges the legal community faces while trying to get cannabis rescheduled or descheduled. A major one is how it will affect international drug laws. While the U.S. is one of the most restrictive nations when it comes to drug policies, other countries may look to the U.S. after a shift in cannabis scheduling. This may play a large role in the de-stigmatization of cannabis worldwide. And depending on the laws in the country, it could also lead to decriminalization.
While marijuana remains in Schedule I, state governments across the nation have enacted laws to permit medical and/or recreational use. Unfortunately, cannabis operators have suffered tax consequences because of Section 280(e) of the Internal Revenue Code (“I.R.C.”), which prohibits business owners from taking deductions for various normal business expenses on their federal tax returns.
However, if marijuana is rescheduled to Schedule III, business owners would no longer bear the harsh federal tax consequences since Section 280(e) doesn’t apply to Schedule III substances. This would result in business owners finally being able to deduct things like payroll, rent, and advertising from their federal tax returns. U.S. health officials already recommended that the DEA reschedule marijuana to Schedule III back in 2022, so the ball is in the DEA’s court for now.
Rescheduling marijuana, or descheduling it, could also lead to investment banking impacts. Current cannabis businesses have limited access to banking services, but with a reschedule to Schedule III, more institutions may be more willing to provide banking to those businesses. The whole industry would benefit financially from rescheduling since current cannabis businesses are hard pressed to find investors to help fund their establishments.
Finally, it is worth mentioning that the current relationship between insurance companies and marijuana are virtually nonexistent. However, rescheduling to Schedule III would allow FDA-approved marijuana products to be eligible for insurance coverage. This is a huge step for healthcare because if the cost of approved products can be offset, or even eliminated in some cases, using health insurance, the affordability will increase patient access tenfold. This may also prove beneficial to the insurance companies since covering medical marijuana could be more cost-effective than covering opiates.
Presidential Campaigns Likely to Slow the Process
Drug policies are a hot topic in campaign trails, but many other issues take the spotlight as well. While it is hopeful that the DEA will re-classify marijuana early this year, it should be noted that the process will likely be hindered by the upcoming presidential election. President Biden is the one that pushed Health and Human Services (“HHS”) to start moving on the issue in 2022, but he may have bigger mountains to climb in the coming months.
Another notable concern is whether the next person in the presidential seat will want to continue Biden’s efforts on the matter. Both Democratic candidates racing against President Biden for the 2024 election support marijuana reform efforts. However, some candidates across the aisle aren’t so enthusiastic.
Former President Donald Trump was known for opposing the legalization of recreational marijuana but was seemingly in favor of medical marijuana reform. He also signed the Farm Bill in 2018 and Title X of that bill includes removing most legal restrictions on hemp. Another Republican 2024 candidate, Former Governor Nikki Haley, does agree with federal health officials in the Biden administration that marijuana should be rescheduled; however, she reiterated that states should still remain in control as to whether they want legalization of marijuana within their borders.
If the DEA moves forward with rescheduling marijuana from Schedule I to Schedule III, businesses across the nation will benefit dramatically. The HHS gave the recommendation in 2022, and the DEA has no choice but to accept the science that supports this recommendation. While this decision would change the industry nationally, it would not strip states from their right to enact and maintain laws surrounding marijuana. Presidential candidates will likely have a lot to say regarding rescheduling, which voters will take note of the consequences that a new President of the United States will bring.
If you would like to discuss how the rescheduling process may affect your cannabis business operations, contact our Team today!