'Schizophrenic Policy' Handicaps Cannabis — Here's What One Pot Attorney Says Feds Need To Change

Bud businesses are in a bind.

On the local level, economic and political progress has been made in at least 33 states where cannabis is legal in some form or another. On the federal level, the industry is hampered by a Schedule I classification, which lumps marijuana into the same category as ecstasy, heroin, LSD and peyote.

"Cannabis law modernization is still handicapped by what appears to be schizophrenic government policy," Charles Gormally, co-chair of the cannabis practice group at Brach Eichler LLC, told Benzinga.

"The Schedule I designation made with the declaration of the failed war on drugs was never meant to be permanent, and yet here we are some 50 years later and it remains."

The result can be devastating for new companies because it cuts them off from basic banking services that other industries enjoy.

They are also deprived of normal tax treatment and standard business tax deductions — all due to federal illegality. 

"This makes their cost of doing business significantly higher," Gormally said.

State, Federal Disagreement 'Chills' Cannabis Investment: The problems plaguing the pot industry, which employs over 243,000 American workers, go beyond banking.

"The federal vs. state bi-polar situation does have important impacts on the industry," Gormally added.

One example is how business must be conducted only within state borders. This hampers the creation of what in any other industry would be efficient marketplace behavior, he said. 

"Imagine if we could only consume alcohol that is created within New Jersey," Gormally said.

Despite being considered an essential businesses in most states during the coronavirus pandemic, medical cannabis businesses have had no access to the Payroll Protection Program and couldn't access financial relief.

Even if operators comply with state law, they are still at risk of being prosecuted by the federal government for felony drug trafficking under federal law.

"There are not many parallel circumstances like this which currently chills investment in the sector except for those with high risk tolerance," Gormally said. 

Social Justice, Regulated Cannabis Market Go Hand-In-Hand: Federal illegality has also complicated and delayed the ability to address various social justice issues surrounding modernizing cannabis law, Gormally told Benzinga. 

"We simply cannot continue to tolerate the incarceration of thousands of citizens for prior cannabis offenses," he said. "If the federal government would lead the way and eliminate the Schedule I classification for cannabis, a powerful message to the states would resonate to address this problem."

The vast majority of citizens who are penalized for cannabis are minority groups, according to the American Civil Liberties Union. 

That's despite the fact that blacks and whites use pot at about the same rate.

"This disproportionate impact is illustrative of how poorly prohibition worked, but how efficient it is in disadvantaging minority groups through disparate enforcement," said Gormally.

In states where cannabis is a regulated marketplace, there are reduced law enforcement expenses, new jobs and millions of dollars of new tax revenue, he said. 

"One could only imagine how greatly improved this experience would be if the federal and state government could harmonize their efforts by removing the Schedule I classification."