Opinion: What Main Street operators need to know about rescheduling or descheduling marijuana

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Aaron Smith

Last fall, President Joe Biden called on the leaders of the U.S. departments of Justice and Health and Human Services to “review expeditiously” how marijuana is scheduled.

The move opened the door to renewed speculation about how descheduling – or rescheduling – marijuana would affect regulated cannabis markets operating across the country.

Those of us in the industry were obviously pleased with Biden’s request.

But the president’s move also emphasized the need for policy reform that will benefit smaller, independent cannabis businesses – not just multistate operators and other large, deep-pocketed companies.

Main Street cannabis and rescheduling

Descheduling is the key to responsible federal marijuana reform.

By descheduling marijuana and placing it under the purview of the Alcohol and Tobacco Tax and Trade Bureau (TTB), cannabis could be regulated similarly to alcohol.

Unlike tasking the U.S. Food and Drug Administration with oversight, cannabis would be a logical – and better – fit for the TTB because it’s already equipped to deal with regulating consumer packaged goods.

Rescheduling cannabis from Schedule 1 to Schedule 2 would be the worst-case scenario for Main Street cannabis businesses.

Moving the plant to Schedule 2 – “drugs with a high potential for abuse which may lead to severe psychological or physical dependence” – would subject all cannabis-based products to FDA scrutiny and approval.

States with regulated adult-use markets have shown that they can operate far beyond that restrictive model.

Rescheduling would be regressive and have dire consequences for existing operators in those markets.

Moving marijuana to Schedule 3, on the other hand, would have the advantage of removing cannabis from the draconian and poorly applied Section 280E of the Internal Revenue Code.

There could still be a mountain of FDA regulations to address, but cannabis operators would no longer be forbidden from deducting ordinary business expenses from gross income associated with the “trafficking” of Schedule 1 or 2 substances, as defined by the Controlled Substances Act.

Rescheduling is far from ideal, given that it would fail to align federal law with modern state cannabis laws.

There would be some benefit to moving marijuana to Schedule 3 or higher, however, as long as that move is accompanied by a clear mandate to the FDA and U.S. Drug Enforcement Administration that federal law must not apply to state-licensed cannabis businesses.

That mandate could come from guidance from the executive branch or from Congress in the form of budgetary restrictions such as those that are currently in place to protect medical cannabis.

One scenario that has been mentioned in industry circles – but not yet in congressional legislation – is the creation of a sixth schedule that would allow legal cannabis at the state level to continue as is.

The problem with this idea is that marijuana would technically remain a controlled substance and, therefore, under the jurisdiction of the DEA, whose charter is to enforce prohibition while ostensibly protecting public health.

The need to deschedule cannabis

Although President Biden requested a review of the scheduling of marijuana, he has not indicated any support past that request.

The only way to harmonize state and federal law and ensure a future for the small businesses that make up the Main Street cannabis industry is to remove marijuana from the Controlled Substances Act and begin the process of regulating the product under federal law.

The push for federal legalization now has the credibility of successful state legalization, and it’s important to ensure that members of Congress understand the need to keep taxes within reason at the federal level so the industry can compete against the illicit market.

If lawmakers are educated on the debilitating effects of overtaxation in markets such as California, they might be more inclined to keep the federal government from adding another layer of unreasonable costs.

More than ever, Main Street cannabis operators need to push to remove marijuana from the federal Controlled Substances Act rather than rescheduling the drug.

Federal legalization is coming in some form, and Main Street cannabis needs to get involved and educate Congress as much as possible about how regulated cannabis markets operate well, where they can improve and why improper rescheduling, heavy taxation or other federal overreach would be devastating to small businesses across the country.

Aaron Smith is co-founder and chief executive officer of the Denver- and Washington DC-based National Cannabis Industry Association. He can be reached at aaron@thecannabisindustry.org.

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