Cannabis Rescheduling: A Historic Leap Forward
The recent DEA announcement surrounding their recommendation for cannabis, marks the first tangible federal change for cannabis since it was made federally illegal in 1937. Today is a day that cannabis professionals, industry investors, and stoners alike have been waiting for for (87) years.
"Today marks a pivotal moment in the cannabis industry as we celebrate the rescheduling of cannabis. As competition intensifies, it's imperative that we uncover overlooked efficiencies to drive profitability. 240L is our beacon, optimizing fractured supply chain processes to enhance profitability for manufacturers and store owners alike. Now more than ever, investing in intelligent technology is paramount to staying ahead in this rapidly evolving landscape. Let's seize this opportunity to revolutionize our approach and ensure our success in this thriving industry." – Ryan Daube, CEO 240Logistics
While we are still waiting on the final announcement, and although nothing is official, we wanted to arm you with the knowledge of where we’ve been and how we’ve gotten here, to better understand the enormity of these changes.
The Controlled Substance Act
The Controlled Substance Act was originally published in 1971, and it sought to classify drugs into scheduled categories based on their medicinal benefits and their potential for addiction. Drugs fall under five schedules; Schedule I having the highest potential for addiction, with the least medicinal benefits, Schedule 5 having the least potential for addiction and the most medicinal benefits.
Currently, Cannabis is classified as a Schedule I drug, alongside drugs such as LSD, Ecstasy, and Raw Opium. Also worth mentioning is that neither alcohol nor tobacco are classified under the Controlled Substance Act.
Rescheduling Timeline
In August, 2023, the HHS made the recommendation to the DEA to reschedule cannabis to a Schedule III classification. This came after President Biden called for a federal review of cannabis rescheduling in October 2022, where he moved to pardon thousands of Americans who have been convicted of simple cannabis possession charges.
Since Biden’s announcement, and the recommendation was made, the cannabis industry has continued to get its time in the limelight, with the President mentioning cannabis convictions in his 2024 State of the Union address, and Kamala Harris holding cannabis-related roundtables and conversations with cannabis leaders.
Yesterday, April 30, 2024, we received the news that after 7 months of deliberation and research, the DEA is moving to reclassify cannabis as a less dangerous drug, with many expecting a Schedule III decision.
What Does Schedule III Mean?
Cannabis is expected to join the ranks of drugs such as Ketamine, Anabolic Steroids, Testosterone, and Ambien in the Schedule III category. While this still means that there will be restrictions on the procurement, sale, and distribution of cannabis, this reclassification will usher in changes that will significantly impact the current state of the cannabis industry as we know it.
It’s also worth noting that this classification impacts medical cannabis only – Recreational cannabis continues to operate in a gray market. Interested in learning more? Check out this recent State of Cannabis Legalization Deep Dive.
Removal of 280E
The most significant impact this change will have on the cannabis industry is the removal of 280E. 280E is a tax code that was implemented into law in the 1970s after a drug dealer in Minneapolis tried to write-off his drug paraphernalia after he was arrested, on the grounds that they were business expenses.
Cannabis businesses are required to work under 280E regulations, meaning they are unable to write off business expenses for their operations, leading to businesses having to pay 70-80% of their revenue to the United States government. Additionally, the Schedule I classification coupled with 280E, removes the ability for cannabis businesses to apply for business loans, and has forced the current cannabis industry to rely solely on private investors to fund the industry – A trend that has quickly dried up.
From an insider’s perspective, the removal of 280E will usher in a significant change for cannabis operators and leaders who have been required to work with almost no capital, limited tools, and extensive compliance.
Mainstream Acceptance
Another expected impact associated with this change, is the significant mainstream acceptance this is going to bring to the cannabis industry.
Many consumers report only having tried cannabis in a state where it is regulated – Whether because it’s the easiest way to procure product, or because of the stigma associated with the illicit market. A Schedule III classification demonstrates cannabis’ medicinal benefits to the mainstream public, while properly classifying its addictive properties. Further, these changes will usher in a new era of medical research, and potential plant benefits for problems such as depression, anxiety, insomnia, pain-management, and more.
The farther we can push cannabis into the light, the more we can bring it out of the shadows to implement standards and educate users and potential-users.
Future Changes
While rescheduling signifies significant changes for the cannabis industry, it’s predicted that this change will be the first in a series of necessary changes for the cannabis industry. Most notably:
Banking: Many believe that rescheduling has been the piece that legislators have been waiting for to push banking for the cannabis industry forward. As a reminder SAFE(R) Banking has passed the House 7 times with strong bipartisan support, most recently it passed on September 27, 2024 by a notable bipartisan majority of 14-9 – Now the Senate has to do their part to push it forward.
Interstate Commerce: While interstate commerce is a topic that is far less discussed, especially with the thriving hemp-derivative industry, many industry professionals believe that the Schedule III news will spark changes in this area as well. Specifically, there is chatter in the industry around the Dormant Commerce Clause, the trade agreement between all 50 states, and how lawyers are preparing to go to court to implement interstate practices for the industry.
What Happens Next?
While this announcement is a significant win for the cannabis industry, we aren’t out of the woods yet, but the good news is that what comes next is driven by a very specific and defined process under the Controlled Substance Act.
The process is as follow:
HHS Recommendation: The process initiates with the recommendation from the HHS, which conducts an extensive 8-factor analysis to formulate its recommendation regarding cannabis rescheduling. Completed in August, 2023
DEA Interim Rule Publication: Following the HHS recommendation, the DEA publishes an interim rule regarding cannabis rescheduling. This marks the official commencement of the regulatory process. Where we are now!
Public Comment Period: Upon the publication of the DEA's interim rule, a minimum public comment period of 30 days ensues. However, it's common for this period to extend to 60 days or longer to ensure comprehensive stakeholder input.
Congressional Review Act (CRA): Simultaneously, the regulatory process is subject to oversight under the Congressional Review Act (CRA). This legislation empowers Congress to potentially overturn regulations within 60 legislative days of their implementation. However, the legislative calendar dynamics may extend this period significantly, impacting the timeline.
Office of Management and Budget (OMB) Review: Concurrently, the rule undergoes scrutiny by the Office of Management and Budget (OMB). This review assesses the rule's economic significance, particularly its impact exceeding $100 million, and evaluates its implications on federalism, especially concerning state-federal conflicts in cannabis regulation.
Final Implementation: After completing the requisite steps, including public comment, congressional review, and OMB assessment, the final decision on cannabis rescheduling is reached. This decision is then implemented according to the established regulatory framework.
The Next Cannabis Frontier
As we embrace this monumental shift, it's clear that the horizon for the cannabis industry is brighter than ever. The reclassification of cannabis to Schedule III not only marks a pivotal turn from decades of stringent restrictions but also signals a new era of growth and legitimacy. This change is more than a regulatory adjustment; it represents a transformation in societal attitudes and a promising future for both medical advancements and business opportunities.
As stakeholders in the industry, we stand ready to leverage this new legal landscape, fostering innovation and expanding access. With the regulatory processes unfolding, we remain committed to navigating these changes adeptly, ensuring that the evolution of cannabis laws aligns with the relentless pursuit of progress and the well-being of our communities. The journey ahead is filled with potential, and together, we'll continue to shape a dynamic and thriving cannabis industry.
To learn more about 240 Logistics, visit https://www.240logistics.com/.
