Rescheduling Uncertainties Worth Contemplating

As the prospect of federal marijuana legalization is becoming increasingly realistic, with the U.S. Food and Drug Administration actively reviewing the Schedule 1 status of cannabis, a white paper released earlier this week touched upon just a few of the reasons that moving it to Schedule 3 is not an ideal outcome.

Chief among those reasons, particularly for members of the marijuana industry, is that rescheduling could leave potential criminal penalties in place for state-licensed recreational cannabis companies.

Schedule 3 drugs are still very tightly regulated and controlled by the Drug Enforcement Administration, which raises a question: If the Biden administration chooses Schedule 3, will it then go to war with states that have years-old functional adult-use cannabis markets? Or how will that legal tension be reconciled?

Though that question may sound Chicken Little-esque to some recent additions to the U.S. cannabis trade, those who’ve been around long enough remember the raids on California dispensaries by the DEA still vividly recall the uncertainties of those years. That was before full legalization began gaining momentum in 2012 with ballot measures in Colorado and Washington state.

There are plenty of other logistical unknowns about the ripple effects of rescheduling, another longtime industry source reminded Green Market Report recently.

For instance, there’s a theory circulating that one of the main business benefits of rescheduling might not even come to pass for a huge chunk of the current industry. If marijuana was moved to Schedule 3, then the exemption from the onerous 280E section of the federal tax code – which only applies to those trafficking in Schedule 1 or 2 narcotics – might not apply to recreational cannabis companies. That’s because, theoretically, the Internal Revenue Service could determine that marijuana is still a specifically categorized medicine, not eligible for recreational purposes in the same manner as alcohol or tobacco.

The point is, nobody truly knows. Not yet.

Then there’s the possibility of even more business regulations from the FDA and perhaps other federal agencies if rescheduling were chosen by the Biden administration, instead of descheduling, or moving cannabis off the list of controlled substances entirely.

Many cannabis industry insiders are fond of saying that their crops are more heavily regulated than plutonium. If that’s the approach taken by state officials, consider how burdensome federal rules could be with a similar rulemaking mentality.

Add federal business barriers to the already-hefty bunch of state-level red tape that must now be navigated by many small companies, and “legalization” through rescheduling could be a transformative extinction event for the cannabis industry as it exists today.