Rescheduling marijuana and the next states to legalize: 7 predictions for 2024

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With the cannabis industry eagerly awaiting the U.S. Drug Enforcement Administration’s latest move in the rescheduling process, the new year promises the biggest development in U.S. marijuana policy in 50 years.

If the rescheduling odyssey launched by the Biden administration in October 2022 stays on track, as expected, marijuana will be moved to Schedule 3 of the Controlled Substances Act (CSA) sometime in 2024.

Though it wouldn’t happen overnight, rescheduling would deliver tax reform, as Section 280E of the federal tax code would no longer apply.

That IRS provision has hit state-legal marijuana retailers particularly hard and contributed to money woes elsewhere in the supply chain.

Fulfilling the rescheduling promise might also boost President Joe Biden’s sagging reelection hopes.

But whether tax relief would arrive quickly enough for beleaguered marijuana businesses already struggling because of a variety of state-level factors – falling wholesale prices, a vibrant illicit market, etc. – is another question.

Elsewhere, there’s plenty else to keep an eye on.

The next state to legalize adult-use marijuana must overcome either a court challenge or partisan deadlock.

And on Capitol Hill, Congress is tasked with finally passing marijuana banking reform – which could accelerate the uplisting of cannabis stocks to major exchanges and attract more investment in an otherwise bear market.

But don’t hold your breath.

Below are our cannabis industry predictions for 2024:

1. The Drug Enforcement Administration will propose rescheduling marijuana.

There isn’t much to indicate the DEA will defy the Aug. 29 recommendation from the Department of Health and Human Services that marijuana be moved from Schedule 1 to Schedule 3 of the CSA.

The revolutionary acknowledgement that cannabis has medical value, a determination evidently made thanks in part to data provided by the states, isn’t something DEA has the power to contradict.

That would mean the ambitious administrative rescheduling review launched by the Biden Administration in October 2022 will continue, though exactly what happens next isn’t clear.

Legal challenges of indeterminate length are almost certain.

2. Tax relief will come … eventually.

Rescheduling would mean Section 280E, which prohibits state-legal cannabis businesses from deducting many normal business expenses on their federal tax returns, would no longer apply.

That would mean a brighter future and more money for the $34 billion U.S. marijuana industry.

Beau Whitney, the co-founder of Oregon-based Whitney Economics, estimates the nation’s cannabis retailers will collectively pay an extra $2 billion on their federal returns next spring due to 280E.

In the meantime, some cannabis businesses are already seeking relief from previous years.

Most notable is Florida-based Trulieve Cannabis.

The multistate operator is seeking a federal tax refund of $143 million, arguing that it “believes it does not owe” the taxes it paid over three years.

Whether Trulieve is successful in securing that refund will surely set the tone for other cannabis businesses.

3. Rescheduling might be the only progress at the federal level in 2024.

Congress inched closer than ever to approving long-sought banking reform legislation in 2023 after the U.S. Senate Banking Committee passed the SAFER (Secure and Fair Enforcement Regulation) Banking Act during a markup hearing.

But looking ahead, only 13% of senior congressional aides polled by Punchbowl News believe banking reform will pass in the current 118th Congress, and that’s consistent with other outward signs of deadlock.

Democratic Senate Majority Leader Chuck Schumer hinted in November he’s still wrangling support from Republican senators before he’s comfortable pushing for a full vote on the Senate floor.

And given his opposition as an obscure backbencher, it’s hard to imagine new Republican House Speaker Mike Johnson demonstrating an appetite for marijuana reform, despite earlier versions of SAFER sailing through a Democratic-controlled house.

There are also many cannabis industry players who hope the next iteration of the federal Farm Bill will address the proliferation of hemp-derived competitors across the country.

But state-level restrictions and bans might convince federal lawmakers to pass the buck downward.

4. The next states to legalize marijuana will be … Florida and Pennsylvania.

Oklahoma voters’ rejection of marijuana legalization in March suggested MJ reform had run out of steam.

But the idea that a “red wall” is blocking marijuana in conservative states took a big hit in November, when Ohio voters legalized adult-use cannabis by a comfortable margin.

That would seem to portend well for Florida to be the next state to legalize recreational marijuana.

A legalization measure backed by Trulieve Cannabis is angling to appear on the November 2024 ballot, but there’s a high bar to meet.

Recent changes to the state constitution mean 60% of voters, or a 20-point victory, is required to pass the proposed constitutional amendment.

That also assumes the measure survives a constitutional challenge now before the Florida Supreme Court.

Elsewhere, attention is pivoting to the Pennsylvania Legislature, which in December passed a major expansion of the state’s medical marijuana industry.

Democratic Gov. Josh Shapiro has indicated he’ll entertain any adult-use legalization measure lawmakers give him.

But to date, a familiar partisan deadlock has kept legalization pushes bottled up.

Despite the recent MMJ expansion, Republican leaders in the state Senate say they remain opposed to any legalization measures absent federal reform.

However, with Ohio’s recent turn, five of the six states bordering Pennsylvania have legal adult-use cannabis, which adds more pressure on legislators to act.

While a long shot to take action, Pennsylvania still has better chances than other states in 2024.

But looking further ahead, the success of medical programs in Deep South states such as Louisiana and Mississippi might hint that the next adult-use move will be in a traditionally conservative area.

5. Marijuana reform will be a 2024 presidential campaign issue – for somebody.

It’s not hard to find political watchers, including retiring U.S. Rep. Earl Blumenauer, who believe marijuana legalization played a role in the election of Biden as president in 2020.

With a legalization measure potentially on the ballot in Florida and the first adult-use sales in Ohio currently scheduled to begin in fall 2024, marijuana will be on some voters’ minds.

And if current polling trends continue, a sagging Biden campaign might need to find something exciting to trigger turnout.

6. States will make moves against the illicit market.

New York Gov. Kathy Hochul struck a triumphant tone in December when she announced the opening of the state’s 37th legal adult-use marijuana store.

But it’s an open question whether what Hochul calls the “nation-leading adult-use cannabis industry” can weather what appears to be the biggest and boldest illicit market yet seen in the legalization era.

What is known is that the illicit market must be brought to heel for legalization to work.

Estimates of how many unlicensed marijuana sellers are open for business in New York City alone range from 1,500 to as many as 8,000.

In contrast, when Hochul and Attorney General Letitia James shut down – for good this time, they promised – a notorious unlicensed store in Brooklyn last month, it marked only the ninth such closure.

There’s reason for optimism, as the state’s legal retail capacity is finally starting to expand.

Major multistate operators were given the green light to begin adult-use retail sales on Dec. 29.

But it remains to be seen how effective new retail options will be at steering customers away from the illicit market – or what combination of enforcement and market incentives will curb unlicensed sales.

And the illicit market is still booming in other legacy states, including California.

Regulators, lawmakers and law enforcement are on notice to devise solutions and deliver results.

7. States will either deliver on ambitious social equity promises or reimagine “a fair industry.”

The legal marijuana industry is still struggling to fulfill criminal justice reform vows.

New York went further than most when it promised that small businesses – including operations run by individuals caught up in the war on drugs – would be first in line to sell cannabis legally.

However, those initial plans triggered constitutional challenges. States are now reevaluating how to guarantee disadvantaged groups a role in the legal industry.

It’s clear more needs to be done to make good on that great expectation as social equity programs across the country fend off legal challenges from would-be entrepreneurs who say they’re unlawfully excluded from the opportunity.

Look for lawmakers in Ohio who ended 2023 without promised changes to the voter-approved adult-use legalization measure to propose a lawsuit-proof equity plan that other states could follow – if one can be found at all.

Chris Roberts can be reached at chris.roberts@mjbizdaily.com.