A Schedule III reassignment would allow marijuana companies to take ordinary business deductions, notably increasing the profitability of the marijuana industry.
Rescheduling marijuana from Schedule I to Schedule III does not legalize or decriminalize the plant.

Marijuana has long been classified as a Schedule I substance. Schedule I is reserved for substances that have no known medical use and have a high likelihood of abuse. A shift to Schedule III—which is reserved for substances with an accepted medical use and a moderate to low potential for physical and psychological dependence—would provide tax benefits for the industry and better opportunities to research marijuana’s medical benefits.

On April 30, 2024, the U.S. Department of Justice announced a rescheduling proposal for marijuana that would move the plant from the highly restrictive Schedule I tier to the more loosely regulated Schedule III tier under the Controlled Substances Act (CSA). This shift indicates that the U.S. Drug Enforcement Administration, the agency responsible for enforcing the CSA, has determined that marijuana has a medical use and does not have a high likelihood of abuse.

The clearest benefit of a Schedule III reassignment for the marijuana industry would be the removal of marijuana from the reach of Section 280E of the federal tax code, a punitive clause designed to punish traffickers in Schedule I and II substances. The law currently forbids state-regulated marijuana companies from taking ordinary business deductions, resulting in a high tax liability. Even though relief from Section 280E will only arrive with the issuance of a final rule, industry stock prices have already boosted because of the anticipated increase in profitability of the cannabis industry.

Rescheduling is critically different from legalization or decriminalization of marijuana. The move to Schedule III would provide researchers with better opportunities to comprehensively study marijuana’s health benefits and impacts. However, rescheduling would provide little relief from CSA-imposed restrictions that still govern the manufacture and sale of substances under its jurisdiction. A shift to Schedule III is far from decriminalization of the plant and would not help the thousands of Americans in prison for marijuana crimes or those who have marijuana convictions on their records. While the rescheduling of marijuana is a huge step forward, there is much more progress that needs to be made before the plant can reach full legalization.

The power to legalize and decriminalize cannabis resides with Congress. On May 1, 2024, Senate Democrats reintroduced a cannabis legalization bill, the Cannabis Administration and Opportunity (CAO) Act. This bill would remove marijuana from the scope of the CSA entirely and impose a tax-and-regulate scheme similar to what is currently in place for alcohol and tobacco. The CAO Act would also expunge convictions of low-level marijuana offenses. There have also been talks of pushing through another bill, called the Secure and Fair Enforcement Regulation Banking Act, that would create a safe harbor to shield banks and credit unions that conduct business with state-sanctioned cannabis companies from civil and criminal penalties under federal law.

The cannabis industry and proponents of the product ultimately strive to decriminalize and legalize cannabis and create a consistent regulatory scheme. The proposed rescheduling of marijuana from Schedule I to Schedule III is progress worth celebrating in the industry and a sign that the marijuana trade will soon gain true legitimacy under federal law.

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