Rescheduling Marijuana: Panacea or Red Herring?

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By John Schroyer

A fair share of cannabis professionals have long believed in a relatively simply solution for the industry’s problems: Reschedule marijuana at the federal level.

Despite some apparent recent progress on this front, other industry veterans think it’s not going to be quite that easy.

Calls to remove the plant from its current classification as a Schedule I drug on the Department of Justice’s list of controlled substances have come from all corners of the political sphere. Most recently, a bipartisan bill introduced in the U.S. Senate would move marijuana from Schedule I to Schedule II. President Obama has also commented in general terms on the rescheduling issue in recent days.

The bill follows a policy memo in January from the American Academy of Pediatrics urging the Drug Enforcement Administration to make such a move on its own and thus pave the way for medical research.

Additionally, many advocates argue that cannabis obviously doesn’t belong in the same category as heroin, LSD and ecstasy, which are all widely agreed to be much more dangerous than marijuana.

But what practical effects would rescheduling have for businesses already operating in the marijuana trade?

Taxes, Medical Research Benefits

“In terms of the industry, the most important thing is the way it would affect taxes,” said Jacob Sullum, a senior editor at Reason magazine who penned an in-depth look at the question last year.

Sullum noted that the 280E section of the U.S. tax code, which prevents marijuana companies from deducting many ordinary expenses from their federal taxes, only applies to businesses that deal in Schedule I or II drugs, but not Schedule III or lower (the DEA has five schedules for controlled substances).

“It would be huge, huge, huge,” said Dave Spradlin, a board member of Magnolia Wellness in Oakland and River City Phoenix in Sacramento.

Spradlin, who is a former director of both dispensaries, estimated that if the DEA did take the step of recategorizing marijuana as a Schedule III substance or lower, his two dispensaries could save half a million dollars a year in taxes.

“It would be a game changer, for sure,” Spradlin said.

Rescheduling would also free up researchers to begin looking more seriously into the health benefits and drawbacks of MMJ and protect businesses and patients from prosecution.

Many advocates in favor of the change point to the growing amount of scientific evidence that marijuana does have – contrary to the Schedule I definition – numerous medical benefits.

But that doesn’t mean rescheduling marijuana would solve all of the industry’s problems, said California attorney Khurshid Khoja.

Even if lowering marijuana’s place on the schedule did grant major tax breaks to cannabis companies and open the door for more medical research, that might be about the only two real noteworthy benefits, Khoja said.

And other noted cannabis activists agree with him.

Rescheduling vs. No Scheduling

“The whole idea we should reschedule marijuana is just a red herring,” argued Dan Riffle, director of federal policies at Marijuana Policy Project. “Obviously, it has no business being Schedule I. But our point is that shouldn’t be scheduled at all. And moving it to Schedule three or four or five wouldn’t change the fact that it would still be illegal to possess and use marijuana, whether for medical purposes or adult use.”

Riffle argued that the political reality is that marijuana activists will only get “so many bites at the apple,” especially at the federal level, so the focus should be either full legalization or a bill that grants states exemption from the Controlled Substances Act, such as the new Senate measure.

Furthermore, while the current Senate bill would solve the 280E tax deduction problem for medical cannabis companies, rec vendors would remain exposed.

In other words, what’s really needed is formal congressional approval for marijuana industries in states such as Colorado and Washington, as opposed to the current administration’s approach of issuing guidelines for avoiding federal intervention.

Eyes on 2016

Khoja guessed that at the soonest, rescheduling might become politically feasible after 2016, when more states are expected to either legalize recreational use or join the 32 others that have some form of legal medical marijuana.

“The more electoral votes are represented by that cannabis majority, the better. It’s more likely than not that we’ll have a serious discussion about it after the 2016 elections,” Khoja said.

Rescheduling probably wouldn’t have any bearing on the problems cannabis companies have obtaining banking services, Khoja said. And even if the new Senate bill passes, with its provisions regarding protections for bankers who work with the cannabis industry, that doesn’t guarantee that banks will jump at the chance to provide services for marijuana companies.

Regardless, it’s unlikely that cannabis will be reclassified anytime soon by the DEA, and it’s hard to say what the chances are for the new Senate bill that would move cannabis to Schedule II.

All of which makes 2016 so important, according to many in the industry. If several more states legalize rec next year, then cannabis companies could truly become an industrial and political juggernaut.

John Schroyer can be reached at