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      A full spectrum view of cannabis rescheduling by the FDA

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      Probably the biggest topic of discussion in the cannabis industry this year centers around rescheduling. A late 2022 directive by President Biden for his administration to reconsider the plant’s status as a Schedule I drug finally resulted in the Drug Enforcement Agency (DEA) accepting a Health and Human Services Department recommendation that marijuana be moved to Schedule III. While it’s not a done deal yet, many cannabis professionals and lawmakers believe the writing’s on the wall and that it won’t be long before cannabis is officially Schedule III, a less restrictive category that also includes drugs like Tylenol with codeine and ketamine.

      But what precisely does that mean for the cannabis market and for consumers of the plant? If you consult experts in the space, it’s a bit of a mixed bag.

      “The act of rescheduling marijuana will not legalize adult recreational cannabis use across the states,” said Mitchel Chargo, partner with the law firm Hinshaw & Culbertson LLP. “Nevertheless, it is a historic decision with wide-ranging and yet uncertain consequences that will deeply impact the cannabis industry.”

      So, what are the pros and cons of Schedule III? Just like the plant itself, there’s a full spectrum.

      The potential benefits of rescheduling

      Ask nearly any cannabis industry professional, and they’ll tell you the biggest benefit of rescheduling is the removal of 280E. This section of the federal tax code bans cannabis companies from deducting their cost of goods sold, something every other business in America is allowed to do. Because of the added tax burden, many compliant cannabis companies simply cannot make ends meet—something that could drastically change if Schedule III takes effect.

      “Rescheduling will be a wonderful boost to the entire cannabis industry with the elimination of 280E restrictions on deductions,” said Gary Cohen, CEO of Cova Software. “The history of not being able to write off the deductions for plant-touching elements of the business has resulted in what we all talk about as double taxation.”

      Allowing cannabis companies to write off everyday business expenses would boost bottom lines and allow operators to invest in growth strategies. Additionally, if marijuana were no longer Schedule I, many restrictions on advertising could be removed. Jason Smallheer, CEO of Elevated Growth Group, believes this is a major benefit of rescheduling.

      “The shift opens new avenues for marketing strategies and product offerings,” he noted. “Businesses can now leverage previously restrictive marketing platforms, reach broader audiences, and engage in more creative campaigns.”

      Smallheer added that Schedule III may also open the door to scientific inquiry along with research and development, a major perk for both patients and providers.

      “Rescheduling offers enhanced research opportunities, leading to a richer understanding of cannabis’s therapeutic benefits and risks. This understanding is critical for its integration into evidence-based medical practices, potentially revolutionizing healthcare.”

      Cohen believes reclassifying marijuana would also help encourage elected officials to support bills that would bolster the industry, creating somewhat of a domino effect.

      “Rescheduling is a giant step for relaxing resistance to other cannabis legislation like the SAFER Banking Act or the MORE Act,” he said. “One of the things that has always been a pushback for getting this type of legislation across the line is that cannabis is a Schedule III drug, and a lot of lawmakers are very resistant to take a side on something like that.”

      On the flip side…

      Despite the perceived benefits of rescheduling, insiders admit it’s hardly a silver bullet. Both Chargo and Cohen pointed to the fact that until now, states have set up unique regulation and supply chains around cannabis. Bringing in the FDA could only complicate matters further.

      “(It) creates additional disconnect between the federal and state governments,” Chargo lamented.

      “This is the other side of the coin—the impact of FDA oversight and how that will affect growing manufacturing aspects of the industry,” Cohen added, wondering to what extent the federal government would regulate the space.

      There’s also the fact that rescheduling is not technically legalization and that, for all intents and purposes, recreational cannabis businesses would still be federally illegal. Not to mention the fact that cannabis products may need to be FDA-approved to be legally sold, something rescheduling alone does not achieve.

      Advocates have also warned that moving cannabis to Schedule III would not expunge criminal records nor free prisoners serving time for plant-related charges. The restorative justice side that many in the cannabis space advocate for would continue to be an uphill battle.

      Despite this, most cannabis industry professionals agree that Schedule III is a step in the right direction. The financial benefits alone are enough to help the space thrive and perhaps build momentum for widespread reform. One thing that is for sure is that if cannabis is rescheduled, the space will never be the same again.

      Hear more about cannabis rescheduling and business best practices at Lucky Leaf Expo’s events. Join us in Albuquerque, New Mexico, from September 27-28, 2024, for two days of experts speaking about cannabis industry updates.

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