EXCLUSIVE: Cannabis Industry Leaders React To DEA's Possible Marijuana Reclassification — 'The First Domino To Fall'

The U.S. Drug Enforcement Administration (DEA) has announced that they will initiate steps to reclassify marijuana as a less dangerous drug, marking a substantial modification in American drug policy.

This decision, pending a review by the White House Office of Management and Budget, aims to reposition marijuana from Schedule I to Schedule III, acknowledging its medical benefits and lower potential for abuse compared to more dangerous substances.

A Move Toward Recognition and Regulation

This change is anticipated to create extensive implications across various sectors in the United States. By shifting marijuana to Schedule III, which includes drugs like ketamine and some steroids, the DEA recognizes the evolving perspectives on marijuana’s use and its medical applications.

The reclassification proposal follows a recommendation from the Health and Human Services Department and will undergo a public comment period before finalization.

The reclassification could alleviate significant financial burdens on cannabis businesses by changing how they are taxed under IRS code 280E. Currently, cannabis companies cannot deduct standard business expenses, significantly increasing their tax obligations.

This change, while not legalizing recreational use, will allow for more business deductions and lower tax rates for companies within the industry.

Reactions from Cannabis Industry Leaders

As the DEA’s reclassification proposal transitions into the public commentary phase, it is crucial to consider the perspectives of various stakeholders within the cannabis industry.

The following insights come from leaders and experts who will feature prominently at the upcoming Benzinga Cannabis Market Spotlight event in New Jersey and the Cannabis Capital Conference in Chicago.

Chirali V. Patel, Esq., managing partner at Blaze Law Firm LLC, detailed the implications: “Rescheduling will move cannabis, or ‘marijuana,’ from Schedule I down to Schedule III. The biggest implication for cannabis businesses, in general, is that it will alleviate IRS code 280E so that companies can take business deductions like ordinary businesses would, which would effectively lower their tax rate.”

Suzan Nickelson, founder & CEO of Holistic Solutions, celebrated the change, saying, “Today is such a historic day! This allows us to do away with 280E, allowing our business to become profitable. It also allows entrepreneurs like myself to scale, invest more in cannabis research, and work with previously barred companies.”

Continued Advocacy and Patience Encouraged

Will Bowden, CEO of Grasshopper Farms, emphasized the need for strategic patience: “This is a huge step for both the cannabis industry and the United States. Change of this magnitude takes time, even when the rationale seems clear by the majority.”

Aaron Grey, managing director at Alliance Global Partners, analyzed the financial benefits: “Moving cannabis to Schedule III from Schedule I would acknowledge the medical use of cannabis but does not legalize adult-use cannabis. The biggest known impact of rescheduling to Schedule III is removing the onerous 280E tax, which we estimate could result in a cash benefit of upwards of $150M.”

Investment and Growth Perspectives

Michael Villapiano, director at Altmore Capital, predicted further investment growth: “Rescheduling is a landmark development for the industry and hopefully the first domino to fall, leveling the playing field for cannabis companies.”

Barbara Fox, COO of Cannbiz Supply, outlined the potential market evolution: “The rescheduling of cannabis may not immediately alter sales dynamics in recreational markets, but it’s set to revolutionize the business landscape by unlocking substantial tax advantages for cannabis companies.”

Joseph Lustberg, managing partner at Upwise Capital, reflected on financing opportunities: “Upwise is thrilled about this giant leap the Biden Administration has achieved for the cannabis industry. We look forward to providing even more robust financing solutions for our cannabis clients after the burden of 280E has been lifted from their balance sheets.”

A Step Forward, Yet Full Legalization Remains Elusive

Bryan Gerber, co-founder and CEO at Hemper and Hara Supply, highlighted the broader societal impacts: “The DEA’s proposal to reschedule cannabis is an important advancement toward reversing the failed War on Drugs and has the capacity to usher in a new era for the industry.”

Tiffany Richardson, CPA and partner at Crowe LLP, shared her enthusiasm for the financial implications: “We are very excited with yesterday's news on rescheduling. When finalized, this move will be extremely beneficial for companies’ financials due to the removal of IRC Section 280E and the creation of increased cash flows.”

While this adjustment in DEA policy is a step towards recognizing the medicinal value of marijuana, it does not fully legalize the plant. Significant regulatory frameworks will still govern the distribution and sale of marijuana, akin to how alcohol is regulated. Industry experts continue to advocate for complete descheduling to remove federal prohibitions entirely.

The transition reflects not only a shift in regulatory attitudes, but also a response to increasing public support for marijuana legalization and the ongoing efforts to rectify the long-standing impacts of its criminalization.

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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: Former FDA Agent Says Big Pharma Not Likely To Get Involved In Cannabis Industry After Rescheduling

Image: Courtesy of Handatko via Shutterstock