Significant changes are expected to the legal landscape of marijuana in the United States. Recently, we learned the U.S. Drug Enforcement Administration (DEA) will move to reclassify marijuana on the Federal Schedule of Controlled Substances where marijuana sat alongside illicit and dangerous substances for more than 50 years. News of the DEA’s historic decision to move marijuana from Schedule I to Schedule III came through a report verified by multiples sources, including the Associated Press. Before the rule is put to the public for a formal comment period, the DEA’s decision will pass from the agency to the Office of Budget and Management to review for compliance with laws and polices meant to promote efficiency, transparency, and inclusiveness in the rulemaking process and help guard against unduly burdensome and costly regulation. While staunch opponents have vowed to fight this reclassification, the DEA’s decision will likely take effect before the election.

The move to Schedule III would not legalize marijuana federally, but will likely transform the landscape of the legal cannabis industry, creating improved economic benefits to operators and those associated with marijuana-related businesses.

In the U.S. Department of Health and Human Services’ (HHS) August 2023 recommendation, the HHS Department called on the DEA to move marijuana down to Schedule III concluding that the “risks to the public health posed by marijuana are low compared to other drugs of abuse…” and far less harmful than alcohol when measuring adverse health events, overdoses, and the prevalence of driving under the influence.

Moving to Schedule III wouldn’t fully legalize cannabis, but it could drive market stability and significantly reduce business risk. Rescheduling would end the application of Internal Revenue Service (IRS) Code section 280(e) to the legal cannabis industry. Code Section 280(e) presently taxes legal cannabis businesses with effective tax rates commonly ranging between 70 to 90 percent. Ending 280(e) for legal cannabis businesses would significantly lower their tax burden, helping stabilize the industry with an infusion of resources to reinvest in research, infrastructure, and workforce.

The shift in legal status from an illicit substance with no legally recognized use will likely soften the risk environment that increases business costs from real estate to banking. This move by the Biden Administration could put pressure on members of Congress to shift their legalization stance to align with broad bipartisan support.

Rescheduling is a giant and necessary step towards federal legalization. With rescheduling will come the opportunity for federal agency engagement and the need for substantial legislative fixes to align law and policy with marijuana’s new status. Advocates from the industry to social justice will need to increase government engagement, especially with lawmakers in Washington, D.C., to ensure a seat at the table.

Ice Miller has substantial federal and multistate experience in the cannabis industry and regularly advises businesses, governments, investors, banks, suppliers, innovators and others as they navigate the growing and constantly changing legal cannabis market.

For more information about how rescheduling could impact your business, please contact Amber Littlejohn or any other member of the Ice Miller Cannabis team.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.