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It’s Finally Happening: The Government Is Softening on Cannabis

a plant, scale and decriminalizing marijuana

The cannabis industry has been challenged since its very beginning, but steadily, states have progressively passed laws and referendums supporting legal use of the substance. In fact, over 40 states now either allow medical, recreational, or both uses. And many states have begun decriminalizing marijuana making penalties and punishments less intense and for greater amounts of possession. All of this has enabled the cannabis industry to perk along. However, because cannabis remains a Schedule I substance according to the Controlled Substances Act, federal barriers remain. This may soon change if recommendations for rescheduling cannabis result in change.

some tincture and some weed
For true growth, the cannabis industry needs Uncle Sam’s approval.

(The medicinal uses for cannabis are undeniable–read more in this Bold story.)

Under encouragement by the current administration, the Department of Health and Human Services (DHHS) suggested rescheduling cannabis. The rescheduled classification suggests that DHHS now recognizes medical uses of marijuana. And it could mean that cannabis companies may finally have access to needed tax breaks and financial supports. But rescheduling cannabis does not mean the same thing as decriminalizing marijuana. These changes do not well align with state laws either when it comes to marijuana use and possession. Regardless, these shifts in perspectives suggest that cannabis restrictions are lessening at a federal level. And for the cannabis industry, this is a trend that is quite welcomed.

Developments in Cannabis Scheduling

Under the Controlled Substances Act, cannabis is a Schedule I substance, equating it to heroine in terms of risk. Despite medical evidence of cannabis’ benefits, this categorization implies it has no medical utility. As a result, federal views of marijuana continue to place marijuana as an illegal substance whose possession or use is a crime. However, as it evident today, the majority of states have legalized cannabis, creating a bit of a dilemma. Cannabis companies must walk a tightrope between state permissions and federal laws. This has resulted in a lack of access to banking structures and loans as well as constant threats from federal agencies. Decriminalizing marijuana and rescheduling cannabis have thus been a focus for these companies for years. Finally, it appears, their efforts toward these objectives may be paying off.

(Cannabis companies still need banks–read why in this Bold story.)

Recommendations from DHHS and the Justice Department encourage rescheduling cannabis from a Schedule I to a Schedule III. This would make it more like Tylenol with Codeine rather than heroine, and it would reduce the potential penalties imposed on individuals possessing or using marijuana federally. More importantly, rescheduling cannabis would possibly allow cannabis firms to finally take tax deductions for business expenses. As companies dealing with Schedule I substances, this wasn’t possible since they were seen as the equivalent of a drug dealer. But this would result in decriminalizing marijuana to an extent, saving the industry up to $2 billion in federal taxes annually. Combined with the SAFE Banking Act designed to provide cannabis firms access to banks, such changes could be significant. This is especially true since estimates suggest cannabis firms pay as much as a 70% tax rate.

a gavel, some weed and decriminalizing marijuana
Decriminalizing marijuana at the federal level is the last pieces of the cannabis industry puzzle.

Rescheduling Not the Complete Answer

There’s no question rescheduling cannabis to a lower schedule category is a significant move for the government. This suggests attitudes are changing at a legislative and enforcement level for the country. But simply rescheduling cannabis or even some efforts in decriminalizing marijuana won’t resolve current problems. For instance, if cannabis becomes a Schedule III substance, it will require approval by the Food and Drug Administration (FDA). But the FDA doesn’t typically approve plant-based medicines. Even if they did, all marijuana users would require a formal prescription, and all cannabis providers would need DEA registration. While this is certainly possible to achieve, it’s not the current structures for marijuana use at a state level. This is definitely true for states allowing recreational use.

It should be noted that no state embracing the total decriminalization of marijuana. Laws remain that oversee possession amounts, distribution abilities, and licensure to sell. But compared to federal laws, states are often viewed as taking a much more liberal approach to decriminalizing marijuana. Under the new rescheduling cannabis recommendations, marijuana possession and use could still be considered illegal. This is not what cannabis companies prefer. Instead, they believe marijuana should fall under regulations similar to those of alcohol rather than a medical substance. This better aligns with states that have adopted recreational use laws and would be better at decriminalizing marijuana. The current recommendations will not achieve this but instead only offer cannabis companies better financial positioning.

Next Steps in the Process

a flag, some dreadlocks and rescheduling cannabis
Rescheduling cannabis at the federal level would break the industry wide open!

A significant amount of enthusiasm followed the announcement by the DHHS. Not only did cannabis suppliers respond favorably but so did investors. Tilray, a large cannabis firm, saw its share prices increase 39% while Canopy Growth’s stock rose 79%. Both of these companies had seen more than a 90% drop in share prices over the last five years. Rescheduling cannabis to a lower schedule category and its tax ramifications fueled these shifts in perspective. The savings realized by the firms could allow more hiring as well as lower pricing. If the SAFE Banking Act should pass, these federal-level changes could breathe new life into the cannabis industry.

While the market’s reaction has been rather quick, no one should expect the same pace for rescheduling cannabis. At this point, it is in the DEA’s court in determining whether or not to act on DHHS’ recommendations. Likewise, the DEA process can be lengthy, taking more than a year. This includes rule-making processes and opportunities for public comment. And it could also include addressing product standards, universal labeling, and childproof packaging. And even in rescheduled to a lesser category, there will remain issues related to decriminalizing marijuana. In essence, this means the road to cannabis acceptance widespread continues to be long with a final destination in the distance. But these recent events are encouraging as it relates to the cannabis sector. After all, slow progress is better than no progress.

 

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