Efforts Underway To Reclassify Cannabis At The Federal Level, With Support From A Coalition That Includes California And Colorado

Colorado, California and 10 other state attorneys general have urged the U.S. Drug Enforcement Administration to recognize the safety of cannabis for medical research. This move could potentially open doors for further progress towards federal cannabis decriminalization.

Cannabis is currently classified by the DEA as a Schedule I substance, indicating its potential for abuse, lack of accepted medical use, and absence of approved safety for medical supervision. Heroin, LSD, and MDMA are also classified as Schedule I substances. Reclassifying cannabis to Schedule III would involve acknowledging its moderate to low potential for abuse and its accepted medical applications. Ketamine, testosterone, and barbiturates are classified as Schedule III substances.

This classification would enable healthcare providers to prescribe cannabis, resulting in reduced administrative, civil, and criminal penalties for illicit use and sale. The coalition pushing for reclassification consists of Colorado, California, Connecticut, Delaware, Illinois, Maryland, Massachusetts, New Jersey, Nevada, Oregon, Pennsylvania, and Rhode Island.

According to a letter written by 12 attorneys general to the DEA, there is a consensus that a state-regulated cannabis industry provides better consumer protection compared to the illegal marijuana market or the unregulated hemp-derived marketplace. Although opinions on fully legalizing cannabis may differ, this agreement highlights the importance of regulation.

The letter highlights the projected growth of the regulated cannabis marketplace, which is expected to surpass $53 billion in 2027. This growth is seen as a positive development for state and federal tax revenue. Additionally, the letter points out that the current classification of cannabis prevents business owners from taking tax deductions that could potentially be utilized to enhance public health and law enforcement outcomes.

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By reclassifying marijuana to Schedule III, legitimate cannabis operators will no longer face the significant hurdle imposed by Section 280E of the Internal Revenue Code. This provision currently prevents them from claiming ordinary business deductions due to violations of Schedules I or II of the Controlled Substances Act. The letter emphasized that re-scheduling would relieve licensed, regulated cannabis companies of their tax burden, enabling them to invest more in state programs and prioritize public health and safety through collaboration with law enforcement efforts.

Normal business relations between cannabis business and banks pose a financial risk due to the drug’s classification. Despite the potential rescheduling of cannabis, banks would still face financial risks when dealing with cannabis firms unless there is a complete descheduling of cannabis from controlled substances. To mitigate these risks, federal regulators would need to provide new financial guidance or lawmakers would need to pass a law protecting banks that work with cannabis businesses in states where they are legal.

An attempt to shield banks from repercussions for providing services to legal cannabis businesses, known as the SAFE Banking Act, was introduced in 2023 but did not make progress.

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