EXCLUSIVE: DOJ's Marijuana Rescheduling 'A Game-Changer For Profit Margins And Cash Flow'

The Justice Department’s recent move to reclassify marijuana has sent ripples through the cannabis industry, with significant implications for many states, including New Jersey, ahead of the upcoming Benzinga Cannabis Market Spotlight event. President Joe Biden announced recently that marijuana would be reclassified from Schedule I to Schedule III, a decision expected to transform the legal and financial landscape for cannabis businesses.

This reclassification marks a crucial shift in federal drug policy, recognizing marijuana’s medical benefits and opening the door for broader research and reduced financial burdens. For New Jersey, a state with a rapidly growing cannabis industry, this move is particularly impactful.

New Jersey’s Cannabis Scene Expected To Grow

Luna Stower, chief impact officer at Ispire Vape Technology, highlighted the financial benefits of the rescheduling. “The DOJ’s move to shift marijuana from Schedule I to Schedule III is big news, especially for New Jersey’s cannabis scene. This isn’t ‘legalization,’ but a nod towards its medical benefits, and it paves the way for financial perks for local NJ businesses. And taxes! By dropping to Schedule III, cannabis companies can finally deduct regular business expenses, including operating costs and payroll. A game-changer for profit margins and cash flow,” Stower said.

She further explained that rescheduling will allow businesses to invest more in products and research, leading to medical breakthroughs and boosting the industry's reputation. For companies like Ispire, it means more resources for technology and market expansion, aligning with consumer trends and positioning New Jersey as a leader in the cannabis market.

Financial Relief and Market Expansion

Matt Karnes, founder of GreenWave Advisors, emphasized the broader economic benefits. “Rescheduling shines a light towards the end of the tunnel in the sense that it will remove the 280E tax burden and improve cash flow profiles for cannabis companies. The domino effect will, in turn, favor ancillary businesses, ultimately leading to more economic benefits for the state to enjoy,” he noted.

Karnes noted that rescheduling could lead to federal legalization, attracting more investment and enabling research and development of targeted products. This would expand the market and draw more interest from investors and industry participants.

Regulatory and Financial Hurdles Remain

Despite the optimism, some remain cautious about the hurdles still ahead. Jason Ackerman, founder of Joyleaf, pointed out the implementation timeline’s uncertainties. “There still are several steps to go into effect, the timing of which is uncertain: legal review, public comments, congress, and rulemaking. So the big question is how long it will take to go into effect and what potential risk is there of getting tripped up,” Ackerman said.

Ackerman added that rescheduling to Schedule III will eliminate the 280E tax burden, making businesses more financially viable and allowing for fairer profits. Taxes will drop from 60-80% of profits to a normal 32%. This improvement may attract more investors and increase lending. However, banking and credit card transaction issues remain, highlighting the need for safer banking solutions.

Small Businesses and Market Dynamics

Dr. Chanda Macias, CEO of National Holistic and Women Grow, stressed the potential positive impact on small businesses. “Rescheduling cannabis can positively impact the NJ marketplace with an opportunity for small businesses to flourish by eliminating the 280E tax burden. Removing the tax burden will allow small businesses to compete with illegal entities by equalizing the competitive environment,” she said.

Macias cautioned that while eliminating the 280E tax burden is beneficial, it could invite pharmaceutical companies into the cannabis market. This shift may lead to competitive pricing and local economic growth but also introduces uncertainty. The gradual entry of pharmaceutical companies, along with existing involvement from the alcohol industry, poses new challenges. Macias's strategy is to maintain the current economic structure, maximize income, support favorable political candidates, and secure more funding for cannabis operations.

Legal Perspectives on Rescheduling

Lou Magazzu, a New Jersey attorney with expertise in cannabis law, provided a legal perspective on the rescheduling process. “Before anyone takes a rescheduling victory lap, we should be mindful of the publication, public input, and litigation which will inevitably follow the proposed rule change. All of these steps will delay any actual impact of this proposed change until after the next presidential administration,” Magazzu said.

Magazzu pointed out that rescheduling marijuana will likely bring increased regulation and oversight, adding costs to the industry. While rescheduling is a long-term positive, immediate benefits like improved access to capital are expected. He preferred changes to IRS 280E and real safe banking legislation for immediate relief.

Permanent rescheduling will introduce more regulation from federal agencies, which, along with state oversight, will complicate compliance. The move may also reduce advantages for early industry adopters and bring challenges like interstate commerce regulation. Additionally, big pharmaceutical, alcohol, and tobacco companies are expected to invest, fundamentally changing the industry.

Looking Forward

The Benzinga Cannabis Market Spotlight event in New Jersey on June 17, 2024, will be a crucial platform for discussing these developments. Industry leaders, entrepreneurs, and investors will gather to explore the implications of the DOJ’s decision and strategize for the future. Make sure to secure your tickets today.

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Cannabis rescheduling seems to be right around the corner. Want to understand what this means for the future of the industry? Hear directly for top executives, investors, and policymakers at the 19th Benzinga Cannabis Capital Conference, coming to Chicago this Oct. 8-9. Get your tickets now before prices surge by following this link.

Now Read: 69% Of Voters, Including Majority Of Republicans, Support Marijuana Legalization: Did You Catch That, Biden And Trump?

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