Most Missouri cannabis operators opted out of DEA registration. Was it a mistake?

Key points:

• Most operators in Missouri’s $1.5 billion cannabis market declined to pursue U.S. Drug Enforcement Administration registration after federal medical marijuana registration.
• With no clear guidance from the Treasury Department about 280E tax relief and no state requirement to register, operators were unconvinced of the benefits.
• The situation shows federal marijuana rescheduling’s shortcomings in states with “comprehensive” systems, with combined medical and adult-use licensing.

Medical cannabis operators across the country have proven eager to register with the U.S. Drug Enforcement Administration following federal medical marijuana rescheduling in April.

But not in Missouri, where the prospect of extra paperwork coupled with a licensing system that doesn’t distinguish between adult-use and MMJ – and a reluctance to hand over details to federal authorities in exchange for still-uncertain benefits – made registration a hard sell, industry representatives told MJBizDaily.

Only about one-third of the Missouri Cannabis Trade Association’s more than 90 members applied for DEA registration, Executive Director Andrew Mullins told MJBizDaily. Of those that did apply, none had been approved as of last week, according to Mullins and Marshall Custer, a Denver-based attorney at Husch Blackwell with a substantial Missouri client base.

For a select few companies, registration led to uplisting to major stock exchanges. But without clear instruction from U.S. Treasury officials that DEA registration is required for 280E tax relief, and with state regulators telling operators in May that registration was optional, operators in Missouri’s $1.5 billion annual market have adopted a wait-and-see approach.

The reluctance represents a bet that will tell operators in other states whether the DEA’s registration drive is a formality or requirement for 280E relief.

But it could be “the wrong tack,” Custer warned.

Why did Missouri cannabis operators skip DEA registration?

DEA registration required submitting a list of owners and employees, Mullins said.

For businesses with “hundreds of employees,” listing them all along with background information” would be a challenge for any organization,” he added.

DEA involvement also created anxiety. Eric Walter, a partner at Armstrong Teasdale in St. Louis who helped draft Missouri’s adult-use cannabis legalization law, said some of his clients refused to hand over ownership information to the DEA outright.

“Some of our owners want to be confidential,” he said. “They don’t want the DEA to have that information.”

There’s also a regulatory complication.

Missouri dispensaries sell medical and adult-use marijuana on one comprehensive license, out of the same inventory.

MMJ comprises less than under 9% of overall Missouri marijuana sales, according to Missouri Division of Cannabis Regulation data. DEA registration would put the whole business under potential federal oversight to cover that small portion while adult-use stays Schedule 1 – and still subject to 280E.

In Walter’s interpretation, the registration order was written for MMJ-only states such as Florida, Georgia and (for now) Virginia.

For states with adult use and medical under the same roof, “the DEA really didn’t seem to roll out the welcome mat,” he told MJBizDaily.

Do medical cannabis operators need DEA registration for 280E tax relief?

Custer believes operators who sat out made a mistake.

“Frankly, I think that was the wrong tack,” he told MJBizDaily.

“This isn’t a request,” he added. “This is a requirement.”

“You can choose not to and there might be consequences to it. There might not, we don’t know.”

“But if you want to take advantage of what a federally legal Schedule 3 business is, you needed to have applied within the 60-day window.”

Though the U.S. Treasury Department still hasn’t released promise guidance on how cannabis businesses can seek 280E relief, Custer believes registration is “step one.”

“If you’re going to take the position that I don’t have to pay 280E because I’m a Schedule 3 DEA handler, you better have registered with the DEA,” he said.

A growing number of cannabis operators already take the position that 280E doesn’t apply to them at all, Walter said.

Some “have run out ahead and just started saying, yeah, we’re not subject to 280E,” on the strength of opinion letters from their law firms, he added.

For those companies, carving out medical alone “would be a 90% loss on the 280E front.”

While dismissing some of those no-280E opinions “incredibly weak legal arguments,” they may also be why some operators didn’t register, according to Custer. An operator that took that position on prior returns can’t switch now without undermining the earlier filings – and potentially owing taxes, he added.

MoCannTrade’s Mullins interpreted the rescheduling order as extending 280E relief to medical sales whether or not an operator registers with the DEA. That’s the view Dentons partner Eric Berlin gave in an MJBizDaily interview last month.

But without clear Treasury guidance, it remains anyone’s guess.

Do Missouri cannabis regulators require DEA registration?

Regulators in other states such as California have tweaked rules to allow more operators to take advantage of rescheduling – or, in the case of Oklahoma, given licensees clear instructions to register or risk losing their state permit.

In Missouri, the state Division of Cannabis Regulation emailed licensees on May 6, a week after the DEA portal opened., to say registration was purely optional.

“While we cannot answer for any particular licensee whether the DEA expects them to register as a licensee, doing so is not a requirement at this time to remain in compliance with DCR,” the email said in part.

Regarding whether a comprehensive license qualifies for registration, “it will be up to DEA to decide if a license type that serves both medical and adult-use populations is eligible for DEA registration,” it added.

It is the only guidance the division has issued, DHSS communications director Lisa Cox told MJBizDaily.

And unlike California, where the state Department of Cannabis Control issued an emergency rule allowing adult-use licensees to easily obtain a medical permit and continue business as usual, Missouri cannabis regulations are etched into the state constitution.

In the May 6 email, DCR said, “At this time, DCR does not have a pathway to convert a comprehensive license to a medical marijuana license.”

Regarding whether a comprehensive license qualifies at all, the division said, “it will be up to DEA to decide if a license type that serves both medical and adult-use populations is eligible for DEA registration.

State cannabis regulators are still unpacking federal marijuana rescheduling

This problem extends beyond Missouri. Maryland also sells medical and adult-use from a single inventory, with the designation made at the point of sale.

According to Custer, the comprehensive-license issue “is going to apply to any state that sets it up that way where they combine the use.”

Most of the nationwide cannabis industry is still waiting to see what advantages DEA registration brings. According to Custer, other operators “in states with comprehensive licensing like Missouri” have been inspected, and the visits have been “cordial and friendly.”

Missouri operators who did apply are also playing a waiting game. MoCannTrade’s Mullins said that he’s only heard of the DEA contact one Missouri licensee that applied – a testing lab – and that communication was about paperwork.

Said Custer: “It feels very much like the early days of state licensure where the regulator is trying to get its feet under themselves.”