Source: JD Supra
On August 29, 2023, the Department of Human and Health Services (“HHS”) sent a letter to the Drug Enforcement Administration (“DEA”), recommending that marijuana be rescheduled to Schedule III under the Controlled Substances Act (“CSA”). The CSA currently lists marijuana as a Schedule I substance. This means that under current federal law, marijuana has “no currently acceptable medical use and a high potential for abuse.”
On the other hand, Schedule III substances “are defined as drugs with a moderate to low potential for physical and psychological dependence.” HHS’s recommendation to move marijuana from Schedule I to Schedule III is a long overdue recognition of the unambiguous data showing that marijuana has an extremely low potential for abuse, and more importantly, that it has a variety of medical benefits and therapeutic applications.
HHS’s recommendation does not mean that marijuana is automatically rescheduled as a Schedule III substance. The DEA will use the HHS’s recommendation in determining whether marijuana should be rescheduled. It should be noted that the DEA rarely disagrees with HHS recommendations.
Marijuana’s reclassification to Schedule III is a step in the right direction toward federal legalization. Schedule I substances receive very little funding for research on their potential medicinal or other beneficial uses. As a Schedule III substance, marijuana studies would receive more funding and the benefits of marijuana can be further explored.
Another huge benefit of reclassification would be tax breaks for marijuana business. Under 26 U.S. Code § 280E, businesses cannot claim deductions or credits related to Schedule I or II substances. When marijuana is rescheduled to Schedule III, businesses will be able to claim marijuana related deductions. This tax break may also make marijuana businesses more appealing to investors as the businesses will not have to carry a tax burden that is inapplicable to most other businesses.
Jared Polis, Governor of Colorado, wrote a letter to President Biden commending the HHS’s recommendation to reschedule marijuana to Schedule III. In his letter, Governor Polis pointed out the great health benefits of marijuana as well as the economic benefits of legalization. With regard to marijuana’s health benefits, Governor Polis stated that a majority of medical professionals acknowledge marijuana’s medical use, and that the U.S. currently has over 5.5 million marijuana patients.
As for its economic benefits, Governor Polis wrote that Colorado has generated $14.7 billion in legal cannabis sales and provided over 100,000 jobs from marijuana legalization. Furthermore, in 2022, the U.S. cannabis industry generated $33 billion in revenue and provided 428,000 jobs.
However, Governor Polis urged the President for further reform at the federal level, particularly with regard to Section 280E. The current tax burden imposed by Section 280 places an effective 80% tax rate on cannabis businesses, which is unsustainable especially as more states legalize marijuana.
Governor Polis also stated that in states where marijuana is legal, while remaining federally illegal, businesses have tremendous difficulty accessing the banking system, which inevitably requires them to hold large sums of cash, making them targets of criminals. Finally, Governor Polis also urged the President to address the criminal penalties associated with marijuana which disproportionally affect African Americans.
Rescheduling marijuana to Schedule III is certainly progress but there still some ways to go before it is decriminalized on a federal level.