The Impact of Marijuana Reclassification on Legal Landscape
On May 6, 2024, the DEA made a groundbreaking decision, accepting the US Department of Health and Human Services’ recommendation to reclassify marijuana from Schedule I to Schedule III controlled substance. This move marks a significant shift in federal drug policy, potentially altering the legal framework surrounding cannabis cultivation, distribution, and use.
Reclassification from Schedule I to Schedule III places marijuana alongside substances like acetaminophen with codeine, ketamine, and testosterone, removing it from the category that includes heroin, LSD, and ecstasy. While federal legalization isn’t on the table, this reclassification acknowledges marijuana’s accepted medical use and low potential for abuse.
However, this change doesn’t impact state marijuana laws in the 24 states, two territories, and Washington D.C. that have legalized adult recreational use or the 38 states permitting medical cannabis. But it does offer substantial tax breaks for businesses involved in marijuana production and sales. Under the current Internal Revenue Code, businesses selling Schedule I substances can’t deduct business expenses, but reclassification would allow for significant tax savings, potentially reaching hundreds of thousands or even millions of dollars.
Moreover, reclassification opens doors for cannabis companies to access major stock exchanges, attracting investment capital for further growth. Yet, it doesn’t address banking industry challenges. Federal illegality prohibits cannabis businesses from utilizing deposit accounts and other financial services, leaving many operating solely in cash due to banks’ reluctance to engage with them.
Despite reclassification, cannabis remains illegal under federal law, leading to financial service limitations and unresolved conflicts between state and federal laws. For instance, Michigan legalized recreational marijuana, but employers still hold the right to refuse employment or discharge individuals for violating workplace drug policies, unaffected by federal reclassification.
“I guess reclassification to a three is a good start. It’s better than a one” said Attorney Michael Komorn
The shift to Schedule III also raises regulatory concerns, potentially subjecting medical marijuana to increased FDA oversight, affecting licensing and distribution protocols. However, it doesn’t resolve issues like lack of bankruptcy protection or federal trademark registrations for state cannabis companies.
Cannabis businesses remain ineligible for federal bankruptcy protection due to their violation of the Controlled Substances Act, a hurdle unaffected by rescheduling. Likewise, federal trademark registrations are unavailable due to cannabis’ federal illegality, leaving companies vulnerable to trademark infringement and legal disputes.
While reclassification signifies growing recognition of cannabis companies, its effects are pending. The proposal must undergo review by the Office of Management and Budget, followed by publication in the Federal Register and a 60-day public comment period, possibly leading to further review by an Administrative Law Judge.
The reclassification of marijuana from Schedule I to Schedule III represents a significant step towards legitimizing cannabis businesses and altering the legal landscape. However, its full impact remains uncertain, pending further regulatory and legal developments.
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