(Bloomberg) -- Marijuana is now legal in 24 US states for recreational purposes and in 38 states for medical reasons, but it’s still illegal at the federal level. The Department of Justice has thrown its support behind an effort to remove pot from a list of the most dangerous type of controlled substances. The proposal, which is far from a done deal, would leave recreational use of marijuana illegal under federal law. It could help companies engaged in the legal pot industry compete against illicit sellers, though it wouldn’t solve their problems gaining access to banking and credit services.
What’s the proposal to reclassify marijuana?
Under the Controlled Substances Act of 1970, drugs are classified in the US in one of five categories and regulated on a federal level accordingly. Marijuana is listed under Schedule I — along with heroin, LSD and MDMA — as a drug considered to have the highest risk of abuse and no recognized medical use. The proposal is to move it to Schedule III, a category that includes anabolic steroids, testosterone and ketamine. These drugs have a “moderate to low potential for physical and psychological dependence,” according to the Drug Enforcement Agency. Statistics show cannabis use disorder — or use that interferes with relationships, work or daily life — affects as many as 3 in 10 users.
What’s behind the rescheduling proposal?
Marijuana is increasingly popular in the US, with half of US adults saying they’ve experimented with the drug. In 2023, 17% of Americans reported smoking marijuana. That wouldn’t necessarily cover those who take it in other forms, like edibles or vape. Two-thirds of users say they consume pot a few times a week. Polling indicates that 57% of adults in the US think marijuana should be legal for both medical and recreational use. US President Joe Biden ordered a review of how federal law addresses marijuana in 2022. Moderating federal policy offers Biden an opportunity to appeal especially to younger voters, who are more likely to use pot and to support its legalization, in his bid for reelection in November.
Read More: How Legal Weed Has Changed the US for Better, Worse: QuickTake
What would rescheduling change for users?
Not much. Already federal officials take a relatively relaxed approach toward enforcement of the Controlled Substances Act as it pertains to marijuana. Under the guidance of its 2013 “Cole Memo,” the Justice Department backs off of enforcement in states that have legalized pot, with certain exceptions.
What would rescheduling change for sellers?
Rescheduling is expected to provide a tax benefit to companies that sell legal, regulated marijuana under state-sanctioned programs in the US. As of now, they are prevented from taking tax deductions available to most companies under the federal tax code’s section 280E, which applies to companies that handle Schedule I or Schedule II controlled substances. Being able to write off ordinary business expenses would help companies become more profitable — and thus more competitive with the illegal market, which currently undercuts them on price with untaxed, untested products. The black market for pot in the US, though hard to quantify, is thought to be worth $66 billion a year. The legal industry is estimated at around half that — at $34 billion.
Marijuana stocks have risen since the Department of Health and Human Services gave its nod for moving marijuana to Schedule III in late 2023 and jumped again when the Justice Department did so in late April.
At the same time, as long as weed remains unlawful on the federal level, companies that handle it will continue to have difficulty gaining access to the services of big banks and credit card companies. Their reluctance to serve these businesses makes cash-reliant dispensaries vulnerable to robberies. Some dispensaries complete sales through disguised payments made via cashless ATMs, which creates a loophole in money-laundering controls. To address these issues, dispensaries and the American Bankers Association have urged Congress to pass the SAFER Banking Act, which would provide legal protection to financial institutions that serve state-sanctioned pot businesses. But even with SAFER, it’s not clear that banks would want to step into an industry that might come with additional compliance risks.
Are there implications for medical marijuana?
Regulations associated with marijuana’s Schedule I listing once made it cumbersome for researchers to obtain licenses to study its effects. But a bill signed into law in 2022 has already facilitated such research.
The US Food and Drug Administration hasn’t approved marijuana to treat any medical condition, although it has greenlit an epilepsy treatment whose active ingredient is a cannabindoid, one of the more than 100 chemical substances produced by the cannabis plant. States that have authorized so-called medical marijuana allow it to be sold to people who have qualifying ailments, which vary by jurisdiction, and a doctor’s recommendation — something short of a prescription. Schedule III drugs can be prescribed as medications in theory. Generally, they must first be approved as safe and effective by the FDA.
What happens next?
The Justice Department formally started the process to reclassify marijuana by submitting a rulemaking notice on May 16. Next comes a 60-day public comment period. After that, a final decision will be made by the department and the Drug Enforcement Administration, which “has not yet made a determination as to its views of the appropriate schedule for marijuana,” according to the notice. Any legal challenges could delay the process. Congress could overturn a rule via the Congressional Review Act, but that requires Biden’s signature and majority votes in the House and Senate, which are unlikely. If former President Donald Trump is reelected in November, there’s a possibility his administration could reverse course.
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