Currently as of August 2023, cannabis and all THC-infused products are classified by the DEA (Drug Enforcement Administration) as a Schedule I controlled substance. This classification places cannabis alongside heroin, ecstasy, and peyote. The DEA defines a Schedule I controlled substance as having “no currently accepted medical use in the United States, a lack of accepted safety for use under medical supervision, and a high potential for abuse.” Due to this classification, regulated cannabis operations are subject to 280E tax regulations which prevent businesses from deducting expenses and thereby enforcing razor thin profit margins across the industry.
Cannabis has been considered a Schedule I substance since the Controlled Substances Act of 1970 prior to the beginning of Nixon’s infamously disastrous war on drugs. For the last 53 years, this classification of cannabis has led to literally millions of cannabis-related arrests in the country and countless lives upended.
Now that a majority of states allow cannabis at least in a medical capacity, if not in a recreational capacity, the tides are beginning to turn. Cannabis taxes alone bring individual states millions and millions of dollars each quarter and politicians are noticing. Recently, two Pennsylvania Senators from both sides of the aisle have come together to propose a bipartisan bill in favor of recreational cannabis. The groundbreaking recreational cannabis legislation of early states like Colorado and Washington broke the seal to bring positive attention to the entire industry, and now we are seeing that positive impact trickle through the holdout states.
In 2023 with just over a decade of data from both medical and recreational markets, there is now a challenge to the government to deschedule and eventually federally legalize cannabis. The motion to deschedule cannabis from a Schedule I substance would allow for cannabis operations to operate like a more traditional business and be exempt from 280E restrictions. This is critical and timely, as a recent report showed that “only 24.4% of businesses in the U.S. cannabis sector report that they are profitable.” With less than a quarter of currently operating cannabis companies turning an actual profit, the exemption of 280E tax regulations would allow for thousands of companies to be able to get out of the red and into the green. For more on tax code 2850E and the implications this would have on cannabis operators, see our blog post on the matter.
As of August 30, 2023, President Biden’s team within the Department of Health and Human Services have come forward to recommend that the DEA remove cannabis from a Schedule I substance and be reclassified as a Schedule III substance. Politico claims this move would be “potentially the biggest change in federal drug policy in decades.” Currently, Schedule III substances “have a potential for abuse less than substances in Schedules I or II and abuse may lead to moderate or low physical dependence or high psychological dependence.” Schedule III substances include any product that contains 90 milligrams or less of codeine per dosage unit, such as Tylenol with Codeine. These are often painkillers or anesthesia used in common settings. 280E tax regulations only affect the trafficking of Schedule I and Schedule II substances, so moving cannabis to Schedule III would effectively eliminate the tax implications of 280E for all cannabis companies operating in the United States.
Removing cannabis as a Schedule I substance would change lives.
Stay tuned to our blog for more cannabis news.
