AP is reporting that the U.S. Drug Enforcement Administration will move cannabis from Schedule I to Schedule III pending OMB approval, as recommended by the Assistant Secretary for Health of the U.S. Department of Health and Human Services (HHS). An announcement by DEA has been long expected, particularly after the initial release of HHS’s Schedule III recommendation (back in August 2023, here) followed by the unredacted release in January of its letter to the DEA setting forth the agency’s reasoning (here). It also comes more than 18 months since President Biden directed HHS and the Attorney General to “expeditiously” conduct an administrative scheduling review of the substance.
The DEA’s decision to reclassify cannabis will neither legalize nor eliminate current state cannabis programs. Under schedule III, cannabis will remain a controlled substance and state-legal programs will continue to operate outside of federally legal channels in their distribution of the substance. However, rescheduling cannabis to Schedule III will be a boon to state licensed operators by removing the various tax-related hindrances tied to IRS code section 280E. Among other things, cannabis-related businesses (whether involved in medical or adult-use cannabis) will finally be able to take advantage of all applicable deductions and credits on their business taxes.
Additionally, we remind all stakeholders that while today’s news marks an important milestone, it is but one step in the rescheduling process that will likely take many more months before a final rule is issued. Dentons will provide a more complete report when the announcement is made official. As the DEA’s administrative rescheduling process continues to unfold, Dentons is ready and available to provide further guidance and advice. As always, current and prospective clients are welcome to reach out with any questions.
See our recap on rescheduling misconceptions and responses here.
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