The DEA Finally Takes the First Step on Cannabis

 

There has been a lot of discussion about the rescheduling of Cannabis from Schedule I to Schedule III of the Controlled Substances Act (CSA). The Department of Health and Human Services (HHS) has recommended the rescheduling and the Department Of Justice (DOJ) stated they were seriously considering it. The official act is now on the road, as of today, May 16, 2024. The DOJ and the Drug Enforcement Agency (DEA) has released the this Notice of Proposed Rulemaking.

 

Cannabis is currently on Schedule 1 of the Controlled Substances Act:
Schedule I:

Schedule I drugs, substances, or chemicals are defined as drugs with no currently accepted medical use and a high potential for abuse. Some examples of Schedule I drugs are: heroin, lysergic acid diethylamide (LSD), marijuana (cannabis), 3,4-methylenedioxymethamphetamine (ecstasy), methaqualone, and peyote.

Whereas Schedule III states:

Schedule III drugs, substances, or chemicals are defined as drugs with a moderate to low potential for physical and psychological dependence. Schedule III drugs abuse potential is less than Schedule I and Schedule II drugs but more than Schedule IV. Some examples of Schedule III drugs are: products containing less than 90 milligrams of codeine per dosage unit (Tylenol with codeine), ketamine, anabolic steroids, and testosterone.

 

Process

With the Department of Justice release today, the next step in the process is posting of the proposed change to the Federal Register. Subsequently, there is a sixty (60) day comment period. There is sure to be a voluminous amount of comments, from cannabis industry members, alcohol and pharmaceutical companies, parents, and religious folks, as well as a diverse cross-section of our society. Every American appears to have an opinion on cannabis. Also required is a review of the White House Office of Management and Budget (OMB). The OMB is charged with determining the president’s budget as well as determining policy alignment with the president’s office. After all comments are reviewed, and barring the inevitable plurality of lawsuits, the US Federal Government will finally make their second real progress on cannabis, after the 2014 Cole Memos, and their first official move towards common sense governance.

 

IRC § 280E

While this does not legalize all adult-use (recreational) cannabis use currently regulated by the states, there are tremendous benefits to the existing cannabis industry. First and foremost, IRC 280E disallows deductions for businesses trafficking in a Schedule 1 or Schedule 2 controlled substance. Except for the Cost of Good Sold (COGS), cannabis business cannot make deductions for expenses, which is a problem for operating a regulated business, or any business in general. A rescheduling of cannabis from Schedule I to Schedule III will immediately change this onerous tax consequence and may even allow for amended tax returns, providing a windfall for many cannabis businesses. IRC § 280E states:

No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.

Research

Second, there will be much greater opportunities and access to research, both in terms of funding, as well as access to the actual cannabis flower and associated applications. Until very recently, the only source of cannabis for research purposes in the US and permitted under federal law was the University of Mississippi. And the quality of the cannabis varied so widely and was not even comparable to the cannabis consumed by the public that the research was dubious at best.

 

Additional benefits should include the removal of cannabis on drug tests for employment and parole, fair housing access, and numerous other changes that have ruined lives since the start of the failed drug war.

What the change will likely not accomplish is interstate transport or access to international markets. This is due to the fact that the recreational cannabis industry will still be at odds with federal law. Schedule III drugs require proper FDA approval as well as distribution through a pharmacy and a doctor’s prescription. The existing cannabis industries are not congruent with the DEA’s Controlled Substances Act in any way. Furthemore, FDA approval of drugs is lengthy and dramatically expensive undertaking. Finally, a heterogeneous plant cannot be prescribed by pharmacies as a drug.

 

And here is Kamala Harris speaking on the matter today.