In a historic move, the U.S. Drug Enforcement Administration (DEA) is proposing that marijuana be reclassified from Schedule I to Schedule III on the list of federally controlled substances. Advocates and the Biden administration are touting it as a win in the fight to reform federal cannabis policy. New Mexicans probably won’t be seeing any immediate effects from the change, but state operators will experience some tax relief and it could open the door to new local pharmaceutical companies.
Last week the Associated Press reported that Department of Justice (DOJ) director of public affairs Xochitl Hinojosa confirmed that Attorney General Merrick Garland had circulated a proposal to reschedule marijuana. Once published by the Federal Register, the next step will be the initiation of a formal rulemaking process. The Office of Management and Budget will have to sign off on it before it will be made available for public comment. After that, the DEA can publish the final rule.
Albuquerque-based Attorney Johnn Osborn tells The Paper. that rescheduling marijuana will not affect the federal legal status of weed. Criminal laws related to trafficking, producing and possessing marijuana won’t change, and consumers won’t likely notice much of an immediate difference.
But if the administration goes through with rescheduling, businesses will definitely see some big changes in the coming year.
One change, Osborn says, might come in the form of some much sought after tax relief. Section 280E of the Internal Revenue Code blocks any business that sells Schedule I or II drugs from deducting business expenses from their taxes, a right afforded to all other legitimate businesses. By moving weed to Schedule III, the government might be opening the door for cannabis companies to file for deductions and retain more of their profits.
“I think the interesting thing—especially for the smaller operators—is that the taxes right now are almost cost prohibitive for some of these smaller entities, and once that gets resolved on some level, it’s going to be easier for them to operate,” Osborn says.
Rescheduling may also ease some of the discomfort that banks feel about working with marijuana businesses, as it signals a shift in federal perceptions around the drug.
“If the banking is more palatable, there may be opportunities for operators,” Osborn says. “Banks may be more comfortable with loans and other services — just like with a regular pharmaceutical company.”
Rescheduling could also lead to removed — or at least softened — barriers that currently prohibit widespread research on the drug’s therapeutic qualities.
It also means that pharmaceutical companies will be able to more easily develop cannabis-based medications, and patients will be able to gain access to these medicines through a normal prescription — the same as any other controlled medication.
This may offer up an opportunity for New Mexico weed researchers and producers to cash in on what could become a Big Pharma land grab in the near future. “I think that’s going to be the big shift for medical,” Osborn says. “It’s also probably going to allow those medical entities that are developing medical applications, with the approval of the DEA and maybe the FDA, to transport cannabis over state lines a little bit easier.”
But companies might be forced to face some new challenges if they want to take advantage of the tax breaks and pharmaceutical deals. Schedule III drugs under regulation from the FDA and DEA come with their own set of production and prescription standards that businesses will be expected to meet.
“Whatever tax savings regulated cannabis businesses will see from not being encumbered by 280E will likely be counteracted by costly reporting and compliance requirements related to cannabis being treated as a pharmaceutical,” says New Mexico Cannabis Chamber of Commerce Executive Director Ben Lewinger. “It opens up potential patent wars on strains and other cannabinoids, Schedule III does nothing for folks who are still in prison or have federal criminal records for cannabis.”
And there’s one other tiny issue: If pharmaceutical companies ever succeed in creating a non-synthetic THC-based drug, and cannabis is then legalized at the federal level, that drug will become instrumental in undermining the current industry.
How do we know this? Because it already happened with CBD.
In 2018, the Food and Drug Administration (FDA) approved Epidiolex, the first pharmaceutical drug to use a cannabinoid (CBD) as the active ingredient. The drug is used to treat two extremely rare forms of epilepsy in children. Advocates crowed about the good news.
Later that year, hemp was legalized with the passage of the 2018 Farm Bill. Advocates crowed once again. Since hemp is defined as cannabis with less than 0.3 percent THC by dry weight with no mention of other cannabinoids, CBD extracted from hemp was also legal.
But the FDA immediately put out a statement clarifying that while CBD was legalized by the Farm Bill, it was still technically illegal because of the existence of Epidiolex. Federal law prohibits over-the-counter sales of supplements or foods containing the active ingredients of an FDA-approved drug.
The same thing could happen the second a pharmaceutical company develops a THC-based drug. It’s unclear what would happen with flower sales. CBD is currently in legal limbo. The FDA is allowing companies to produce and sell CBD products as long as they don’t make any medical claims, but that’s only in response to public outcry and following a brief, but concerning, crackdown in which police raided grocery stores and small businesses and a grandmother was arrested at Walt Disney World.
“The only right next move is to deschedule cannabis and to pass SAFER Banking, and I applaud the small group of lawmakers, led by Sen. Chuck Schumer, who are pushing for that now,” Lewinger says.