EXCLUSIVE: Key Legal And Tax Ramifications Of Federal Cannabis Rescheduling, Insights From Dykema Gossett PLLC

Amidst potential shifts in U.S. cannabis regulation, Lance Boldrey, leader of Cannabis Law Practice at Dykema Gossett PLLC, analyzes the potential impact of reclassifying cannabis to Schedule III under the Controlled Substance Act.

Legal Challenges And Transition Strategies

Boldrey said that rescheduling cannabis from Schedule I to Schedule III will pose unique legal challenges and likely necessitate FDA testing and approval for various uses of cannabis, impacting the current dynamics of the industry.

“As a Schedule III controlled substance, cannabis could be sold as medicine. But that would require FDA testing and approval, likely separately for every different ailment, delivery method (vaping, topical use, ingesting), and maybe even by strain. And then cannabis would need to be produced consistently, and sold via prescription,” Boldrey told Benzinga in an exclusive interview.

“While prescriptions could include 'off-label' use, that’s far different than simple adult use. Today, recreational ketamine sales are not a thing, at least not under federal law. The same would be true with cannabis. I don’t see today’s businesses transitioning to Schedule III, just perhaps competing with the pharmaceutical industry,” Boldrey said.

This shift could result in cannabis being sold strictly as a prescription medicine, altering the landscape for existing businesses.

Boldrey advises cannabis operators and investors to engage with legislators and regulators to advocate for retaining the existing systems in preparation for an uncertain future where cannabis companies might compete with the pharmaceutical industry.

“For current operators, if cannabis transitions to Schedule III, I’d worry about what state regulators and legislators might do, such as adopting standards from the pharmaceutical world that cannabis companies could never satisfy,” he said.

Tax Implications

A crucial positive outcome of rescheduling would be the significant tax relief for cannabis businesses. The removal of the Internal Revenue Code Section 280E would allow these businesses to deduct ordinary expenses, revolutionizing financial structures and operations. Investors are advised to reevaluate company structures and prepare for a landscape where taxation no longer dictates business decisions.

Read also: Marijuana Rescheduling, Stock Market Reactions: Analyst Insights On Who Wins & Possible Trump Election

Investor Decision-Making

Despite these changes, Boldrey does not see rescheduling as fundamentally transformative, except for its tax implications and the potential increase in cannabis investments. He suggests that key legal reforms should focus on creating a level playing field, perhaps advocating for full descheduling of cannabis or a separate federal regulatory framework similar to tobacco.

“It would be interesting to see if pharmaceutical companies would enter the market in a federally legal manner and create a new and different competitor. At that point, the key legal reform would be using the momentum of a Schedule III change to either deschedule cannabis altogether or to create a separate federal regulatory framework, something akin to tobacco,” Boldrey said.

Compliance And M&A Considerations

Boldrey touched on compliance and mergers and acquisitions within the sector, warning that rescheduling might not end current state regulatory frameworks but rather lead to more complex compliance requirements.

“My fear would be that state regulators might want to adopt regulations from that other world. Regulations could also change to allow for interstate commerce, radically restructuring the entire industry,” he added.

For mergers and acquisitions, the absence of 280E would significantly alter financial projections and investor interests, presenting both opportunities and challenges in deal structuring.

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