If the U.S. Drug Enforcement Administration reclassified marijuana as a less dangerous drug, it would not eliminate conflicts between the federal government and states like California that have legalized many uses of the substance.
But it would introduce an important change that could give California’s licensed pot companies a much-needed boost: a lighter tax burden.
Associated Press gave this information on Tuesday The Drug Enforcement Administration will propose to move marijuana from the list of Schedule I drugs, which includes heroin and cocaine, to the list of Schedule III drugs, which includes ketamine and anabolic steroids. The proposal would still have to be reviewed and endorsed by the White House and also be made available for public comment.
Industry insiders say the move, if approved, could be a lifeline for California’s struggling cannabis industry. “We were expecting it,” said Meetal Manzoori, a lawyer whose firm specializes in the cannabis industry. “This is huge for the industry.”
Legal in California but illegal under federal law, the state’s cannabis industry is running into a difficult legal tangle. Stores and farms operate outdoors, but they are deprived of the benefits that other businesses enjoy, such as access to markets outside the state.
Their unclear legal status also means that banking, credit card processing, insurance and other vital business services are out of reach for many marijuana businesses.
However, the tax burden has been particularly difficult. Section 280E of the federal tax code prohibits businesses involved in “trafficking” Schedule I or II substances from deducting the expenses they incur. As a result, they are taxed not only on their profits, but also on every dollar they collect.
But if marijuana is reclassified as a Schedule III drug, “players in that industry will for the first time be able to take the standard tax deductions that other businesses take,” said Paul Armentano, deputy director of the National Organization for the Reform of Marijuana Laws. he said. , also known as NORML, which advocates for cannabis consumers. “The biggest change is going to be how the industry does business.”
“The industry in California especially has been floundering over the last few years and this gives them a future,” Manzouri said. “This could be the lifeline they need to continue operating.”
According to California Department of Tax and Fee AdministrationLegal marijuana stores are expected to record revenues of approximately $5.1 billion in 2023, down from last year and 11% from 2021.
For years, licensed businesses have struggled to compete with the growing black market, which can sell their goods at a fraction of the price charged by legal organizations, while avoiding licensing, fees and taxes.
But Armentano hopes industry people don’t want to “jump the gun” and, if marijuana is reclassified, it may still take some time for the changes to materialize.
If cannabis is reclassified, he said, it would still remain illegal under federal law for recreational use. States that have legalized marijuana do not operate under federal standards, he said.
Thirty-seven states have legalized hemp for medicinal use, seven other states have legalized CBD oil for medicinal use and 24 states have legalized CBD for recreational use, according to DISA Global Solutions, a company that conducts drug trials. Cannabis has been legalized.
Some organizations that oppose marijuana legalization, including Smart Approaches to Marijuana, have announced their intention to challenge the final redistricting decision.
Dr. Kevin Sabet, president of Smart Approaches to Marijuana, called it a political decision in an election year, saying, “Crude marijuana has never passed safety and efficacy protocols.” “This decision has been influenced by politics and industry from the beginning.”
If reclassification is ultimately approved, it would recognize medicinal uses for marijuana and require the drug to be sold and regulated at the federal level just as ketamine, certain anabolic steroids, and Tylenol with codeine are regulated. . The products would require federal approval – which no cannabis products currently have.
“Most states regulate cannabis in a way that is inconsistent with federal law,” Armentano said.
That means other financial benefits, such as banking and insurance, will still be out of reach for many businesses, the approval said, especially for dispensaries that operate for recreational use.
This remains an ongoing issue for dispensaries, which typically operate as cash-only businesses. Many of them are unable to obtain banking services for the billion-dollar industry, although the California Department of Cannabis Control has sought to help marijuana businesses. set up bank accounts,
However, major credit card companies won’t process marijuana-related payments, and reclassifying the drug to Schedule III won’t change that, experts said.
“The payments industry only processes legal products, and reclassification does not make cannabis legal,” said Scott Talbot, executive vice president of the Electronic Transactions Association. “Reclassification moves the needle but does not cross the goal line of legalizing cannabis and thus making it acceptable to banks and the credit and debit card industry.”
Yet reclassification could help remove some of the stigma associated with the marijuana and cannabis business, Armentano said. This will be part of a lengthy process, especially for a service as important to an industry as banking.
“My guess is that marijuana could be legalized tomorrow, and your Chase, JPMorgans and Wells Fargos would still say, at least at first, that it doesn’t change our bottom line,” Armentano said.
But those navigating the legal waters of the weed industry still welcome the potential benefits of reclassification.
Chief Adam Terry said, “Redistricting would not legalize cannabis or allow any doctor to prescribe it, but it would allow existing marijuana companies to be taxed like any other business – essentially tax relief. A major investment in the overall sector through.” Executives at Cantrip, a Massachusetts-based THC-infused drink company. “(Reclassification) improves the overall economic health of the industry and continues the move toward legalization in the public eye.”
“This is what the California cannabis industry needs right now,” said Amy Jenkins, legislative counsel for the California Cannabis Industry Association. “The industry faces a large number of challenges with our current taxation structure.”
whitney economics, A cannabis-focused research company estimated last year that legal cannabis operators in the U.S. paid more than $1.8 billion in taxes in 2022, more than other businesses.
Reclassification, Jenkins said, “will provide greater stability to the legal cannabis industry.”
It could also allow more institutions to conduct research, potentially opening the door to industry innovation and greater medicinal benefits. “No one has been able to do large-scale research on this for a long time,” Manzoori said.
For Armento, whose organization wants states to be allowed to regulate marijuana the same way they regulate alcohol, the possibility of reclassification doesn’t go far enough.
“It will take a very long time after the fact for regulators at the FDA and DEA and other agencies to acknowledge that this change is not enough,” he said.
