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Department of Health and Human Services Suggests Marijuana Rescheduling

Updated: Sep 20, 2023

DHHS has formally recommended that DEA reclassify marijuana from a Schedule I drug to a Schedule III drug. The agency's announcement serves as a response to President Biden's 2022 request to the Department of Health and Human Services to "initiate the administrative process to review expeditiously how marijuana is scheduled under federal law."


Currently, marijuana is a Schedule I drug, which is "defined as drugs with no currently accepted medical use and a high potential for abuse," whereas Schedule III drugs are "defined as drugs with a moderate to low potential for physical and psychological dependence." While reclassifying marijuana as Schedule III will not lift federal prohibitions, it does have the potential to impact interstate trade and taxing of cannabis business. Presently, IRS Code 280E "forbids businesses from deducting otherwise ordinary business expenses from gross income associated with the 'trafficking' of Schedule I or II substances, as defined by the Controlled Substances Act. The IRS has subsequently applied Section 280E to state-legal cannabis businesses, since cannabis is still a Schedule I substance." This means current tax law treats "state-licensed cannabis businesses as if they are drug traffickers under federal law and prohibits these businesses from claiming standard business deductions available to every other business in America." However, reclassifying marijuana to Schedule III would mean 280E no longer applies to cannabis businesses, potentially removing a large obstacle in banking and finance for the industry.


Senator Ron Wyden (D-Ore.) released the following statement regarding DHHS' suggestion:


Ultimately, I believe that cannabis should be descheduled with strong federal regulations put in place to protect public health and safety – that’s why I introduced the Cannabis Administration And Opportunity Act with Leader Schumer and Senator Booker. However, the recommendation of HHS to reschedule cannabis as a Schedule III drug is not inconsequential. If HHS’s recommendation is ultimately implemented, it will be a historic step for a nation whose cannabis policies have been out of touch with reality. At long last, barriers to much-needed research will be lifted and the inequitable 280E tax provision thrown in the trash can so that state-legal cannabis businesses will no longer be treated like criminals and can deduct their business expenses just like any other small business.


The International Cannabis Bar Association will host an emergency webinar on Monday, September 11th 10am PST discuss the potential implications of the recommendation to reschedule and what steps need to be taken before the rescheduling occurs. Further details and sign-up instructions here.


Can't make the webinar, visit link to view a recording: https://www.youtube.com/watch?v=OKSSb1qryOs


Have questions about how this will affect your business? Schedule a consultation with EARTH Law, LLC to answer your questions, and have qualified legal experts on your side! You can contact us by email at info@earthlawllc.com or by telephone at 541-632-3946.


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