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Marijuana rescheduling moves businesses into ‘uncharted territory’

Marijuana business owners hoping to benefit from the Biden administration’s move to reschedule the drug may be in for disappointment, according to experts.

The administration announced plans Thursday to move forward with a rule that would reschedule marijuana to Schedule III from Schedule I under the Controlled Substances Act (CSA).

Under U.S. tax code, no business that deals with a Schedule I or Schedule II substance is permitted to make any deductions or add any credit to their annual federal taxes. That stands to change when marijuana becomes a Schedule III drug.

Those in the marijuana space acknowledge that being able to deduct expenses from taxes will be helpful, with Washington, D.C., cannabis dispensary Green Theory calling the decision a “step in the right direction.”

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But experts like Robert Mikos, the LaRoche Family Professor of Law at Vanderbilt University, don’t expect a boon for marijuana entrepreneurs.

“It will have some impact. I think the reason that the impact won’t be as great as many people might otherwise anticipate — it’s really twofold,” said Mikos.

“One is that this drug is still going to be regulated under the Controlled Substances Act. And those regulations are going to be really hard for the companies now in the industry to satisfy,” he added.

The other issue that Mikos sees is that marijuana is doubly regulated under the Food Drug and Cosmetic Act, which bans all sales of unapproved drugs like marijuana, even when it is rescheduled to a less severe classification.

“It won’t be approved by the [Food and Drug Administration] and that approval is still a long way off. So, everything these companies do right now, you know all the sales that they make, they’re going to remain unlawful. And for that reason, they’re still going to struggle, I think, to get banking services.”

Paul Armentano, deputy director of the National Organization for the Reform of Marijuana Laws, has criticized the move to reschedule as not going far enough. But he said the question of how businesses will benefit is unclear as changing marijuana’s designation takes the country into “uncharted territory.”

“The reality is that none of us know and, most likely, these policies and regulations are going to continue to evolve after the fact,” Armentano said.

“We’ve never had a situation where a substance has been moved from schedule one to another schedule of the CSA prior to that substance going through a traditional FDA market approval process and having that substance be approved.”

While the patchwork of state laws legalizing marijuana has allowed for a strong industry to grow, cannabis businesses face obstacles that others don’t. Armentano cited the inability to access credit as well as the exclusion of cannabis entrepreneurs from bankruptcy protections as “problematic” issues that still need to be addressed.

“That’s obviously protection that is necessary, particularly when we’re talking about an industry as volatile as this one. There’s no access to small business loans right now,” he said. “I think the overarching theme would be, look, we want to see the marijuana industry, which currently employs over 425,000 full-time workers, simply be treated the way we treat other legal industries in this country.”

A reduced tax burden could help cannabis businesses lower the cost of doing business and pass those savings onto their customers, which could in turn result in higher traffic.

“We are happy about the potential of eliminating the 280E tax burden — the elimination of which we see as a way to create a more fair environment for small cannabis businesses to reinvest not only in their business, but also in the surrounding communities, without the financial limitations of this tax,” Green Theory said in a statement to The Hill.

“We believe more still needs to be done in this space to continue to create fair opportunities to those negatively impacted by harsh drug laws and we hope to see continued work by the administration in the future.”

Both Mikos and Armentano said that action beyond the White House’s move to reschedule will need to come from Congress.

“This is all Congress’s fault,” Mikos said. “If anyone wants to point the finger at anyone for why we have kind of the weird federal marijuana policy we have today, it’s almost entirely the responsibility of Congress.”

Senate Majority Leader Chuck Schumer (D-N.Y.) reintroduced legislation this month to remove marijuana from the CSA entirely.

“Reclassifying cannabis is a necessary and long overdue step — but it is not at all the end of the story. It’s time for Congress to wake up to the times and do its part by passing the cannabis reform that most Americans have long called for. It’s past time for Congress to catch up with public opinion and to catch up with the science,” said Schumer.

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