Cannabis advocates, executives and investors are celebrating the Drug Enforcement Administration’s reported decision this week to reclassify marijuana under federal drug laws, a development that spurred rejoicing from coast to coast and a spike in cannabis stock prices. The celebrations were tempered, however, by the reality that the decision falls short of the full marijuana legalization that determined activists have been seeking for decades.
On Tuesday, the Associated Press reported that the DEA had decided to follow a recommendation from the U.S. Department of Health and Human Services to reschedule cannabis under the Controlled Substances Act (CSA), citing five unnamed sources familiar with the matter. Under the recommendation, marijuana will be changed from Schedule I of the CSA, the most strict classification intended for drugs with no medical value and a high potential for abuse, to Schedule III, a group including the drugs Tylenol with codeine and testosterone.
The groundbreaking decision to reschedule cannabis will facilitate research into the medicinal benefits of the plant that could lead to new treatments for an unknown number of physical and mental health conditions. As a Schedule I drug, cannabis research was subjected to the strictest regulatory conditions under federal law, hampering studies that could result in meaningful medical advances.
Rescheduling cannabis under federal drug laws will also have significant impacts on the regulated cannabis industry. Perhaps most significantly, the change will ease access to banking services and free licensed cannabis companies from IRS rule 280e, which denies most standard business deductions to companies selling Schedule I substances.
Pot Advocates Hail DEA Decision
After the DEA decision to reschedule cannabis was reported by the Associated Press on Tuesday, the move was hailed by policymakers, cannabis activists and entrepreneurs as an historic milestone in U.S. drug policy reform. In Colorado, one of the first two states to legalize recreational marijuana in 2012, Democratic Governor Jared Polis hailed the historic moment.
“I am thrilled by the Biden Administration’s decision to begin the process of finally rescheduling cannabis, following the lead of Colorado and 37 other states that have already legalized it for medical or adult use, correcting decades of outdated federal policy,” Polis said in a statement. “This action is good for Colorado businesses and our economy, it will improve public safety, and will support a more just and equitable system for all.”
Chuck Smith, president of the board of directors for Colorado Leads, an alliance of cannabis business leaders created to educate the public and policymakers about the importance of a safe and regulated cannabis industry, said that “reclassification under Schedule III will address the 280e tax issue that has unfairly forced state-legal cannabis businesses to pay a far higher effective tax rate than other legal businesses. Allowing marijuana businesses to start deducting ordinary business expenses will allow Colorado companies to retain more revenue, employ more workers, and further invest in their surrounding communities.”
Ali Garawi, the co-founder and CEO of California independent cannabis operator Muha Meds, said the rescheduling of cannabis will allow funds that are now going to taxes to instead be invested in the growth of the company.
“Like many in cannabis, we have had to really think outside the box in terms of financing. At Muha Meds, we’re entirely self-funded, which has forced us to be incredibly calculated with growth. No longer bound to 280e Tax Regulations leftover from the war on drugs, we will be able to utilize funding that we didn’t have the right to before,” Garawi writes in an email to High Times. “We are looking forward to tremendous growth opportunities and some ease of restrictions in terms of just running a business.”
Bob Groesbeck, co-CEO of Planet 13, a multistate operator that owns what is billed as the world’s largest dispensary in Las Vegas, said that the DEA decision will also result in easier access to traditional banking services for cannabis companies. Advocates of regulated cannabis in Congress have offered legislation to allow banks to serve marijuana businesses over the last 10 years, but so far the Senate has failed to approve the bill.
“Rescheduling cannabis should pave the way for much-needed safe banking solutions. Safe banking in the cannabis industry provides a secure environment for financial transactions, granting access to essential services like checking accounts and loans,” Groesbeck noted. “It ensures transparency, reduces costs associated with cash handling, and offers consumers safe and convenient payment options. Overall, safe banking is crucial for industry growth, regulatory compliance, and enhancing consumer experiences.”
Activists Call for More Siginificant Reform
Although the rescheduling of cannabis was hailed by much of the cannabis community, the DEA decision does not achieve the full legalization of cannabis that has been fought for over decades, leading activists to call for more significant reform. Paul Armentano, deputy director of the National Organization for the Reform of Marijuana Laws (NORML), said that marijuana should not be regulated by the CSA at all, noting that commonly used but potentially dangerous drugs such as alcohol and tobacco are readily available to adults.
“The goal of any federal cannabis policy reform ought to be to address the existing, untenable divide between federal marijuana policy and the cannabis laws of the majority of US states,” Armentano said in a statement from the group. “Rescheduling the cannabis plant to Schedule III fails to adequately address this conflict, as existing state legalization laws — both adult use and medical — will continue to be in conflict with federal regulations, thereby perpetuating the existing divide between state and federal marijuana policies.”
Sarah Gersten, the executive director of Last Prisoner Project, a nonprofit working to secure the release of all individuals incarcerated for cannabis offenses, said that the group will continue advocating for more wide-reaching reform.
“Last Prisoner Project believes that complete descheduling and full legalization of cannabis is a necessary step towards correcting past injustices and creating a fair and equitable criminal legal system,” Gersten said in a statement from the group. “We will continue to work tirelessly to ensure that individuals burdened with past cannabis convictions have their records expunged and that all cannabis prisoners are released, regardless of the federal scheduling decision. Despite not achieving full legalization, we must use this historic moment to push the fight for cannabis justice forward, and we intend to do so by leveraging this reclassification for broader criminal legal reforms as outlined here.”
Weed Stocks Rally
Despite falling short of marijuana legalization, the DEA rescheduling decision sent share prices of cannabis stocks to significant gains in Tuesday trading. Multistate operator Trulieve spiked nearly 30% Tuesday afternoon, CNBC reported, while Curaleaf jumped 19% to a 52-week high.
MarketWatch reported that Toronto-based TerrAscend was up more than 25%, while Green Thumb Industries Inc. rose by more than 22% and Cresco Labs Inc. climbed nearly 14%.
Emily Paxhia, co-founder of cannabis investments firm Poseidon Investment Management, said she expects a “surge in liquidity as sidelined capital enters the market, drawn by the potential for legal businesses to thrive” as regulated cannabis companies face off against the entrenched unlicensed cannabis market.
