In a landmark move towards the most significant change in federal marijuana policy in over fifty years, Attorney General Merrick Garland has formally proposed moving marijuana to Schedule III of the Controlled Substances Act (CSA). The proposal follows an analysis of scientific and medical data from the Department of Health and Human Services (HHS) in August, which suggested that marijuana no longer fits the criteria for Schedule I classification.
Substantial Evidence for Reclassification
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Garland’s proposal, outlined in a memo dated May 16, indicates that there is substantial evidence supporting the reclassification of marijuana. “The Attorney General concludes that there is, at present, substantial evidence that marijuana does not warrant control under Schedule I of the CSA,” Garland wrote. This reclassification process has now entered the notice of the proposed rulemaking stage, which initiates formal proceedings to move marijuana from Schedule I.
Steps Towards Implementation
While Garland’s notice marks significant progress, several steps remain before marijuana is officially rescheduled. The announcement starts a 60-day open public comment period, after which the Department of Justice (DOJ) will analyze the feedback before issuing a final rule. The final rule could differ from the initial proposal, particularly regarding economic impact comments.
A final rule could be issued as early as September or October, making the reclassification official. This timing places the potential implementation of Schedule III status for marijuana right amid the presidential election season.
Implications for the Marijuana Industry
The reclassification of marijuana to Schedule III would bring concrete benefits to the $36 billion U.S. legal marijuana industry. Notably, it would remove the draconian tax burdens imposed by Internal Revenue Service Code 280E, which prevents cannabis businesses from deducting ordinary business expenses. Additionally, it would open up more research opportunities, protect public health and safety, and signal further normalization of cannabis under federal law.
President Biden’s Role and Reaction
President Joe Biden initiated the rescheduling process in October 2022 through an executive order directing federal agencies to review marijuana’s classification. On Thursday, Biden highlighted the proposed rule in a social media post, calling the move “monumental.” He emphasized that this step aligns with his administration’s commitment to reclassifying marijuana from a Schedule I drug to a Schedule III drug.
Supporting Research and Legal Opinions
The announcement was accompanied by a 92-page memo from Garland and a 36-page legal opinion from the DOJ’s Office of Legal Counsel (OLC). The OLC’s April 11 analysis criticized the DEA’s previous narrow criteria for determining a drug’s medical value and endorsed a new two-part test from HHS. This test considers whether licensed healthcare providers widely use cannabis medically and whether there is credible scientific support for at least one medical use.
Exclusions and Limitations
Garland’s proposal does not apply to synthetic cannabinoids, which will remain under Schedule I. Additionally, the changes do not affect cannabinoids derived from hemp, defined separately under federal law as cannabis with 0.3% THC or less. So CBD products and businesses will not be affected.
Positioning Your Cannabis Business in the USA
As the federal reclassification of cannabis to Schedule III looms, cannabis businesses should take proactive steps to prepare for the impending changes. They should ensure compliance with evolving regulations by closely monitoring federal and state guidelines. Engaging with legal and financial advisors will be crucial to navigating new tax implications, particularly the potential relief from IRS Code 280E, which currently disallows standard business deductions.
Banking should open up with this legislation in time, so if you’re not currently accepting debit or credit cards for your cannabis business, it’s time to prepare. Cannabis Credit Card Processing Service Providers are not all qualified, see why Brother Processing Solutions is one of the leading independent cannabis merchant services for over a decade.