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The Road to Rescheduling: New Opportunities for the Cannabis Industry

Cannabis Reclassified from Schedule 1 to Schedule 3

Reclassifying cannabis will open numerous doors for the cannabis industry and its businesses.

The US Drug Enforcement Administration (DEA) plans to begin the process of reclassifying cannabis in the near future. This shift would knock cannabis down from a schedule 1, to a schedule 3 substance.

This change is revolutionary for current and future cannabis business owners in the US for a few different reasons. 

One of the most immediate and significant benefits of rescheduling cannabis is that business owners will gain the ability to deduct their business expenses. Because cannabis is currently classified as a Schedule 1 substance, cannabis business owners are limited to deducting only the cost of goods sold (COGS) from their federal taxes. This makes owning and operating a dispensary in states with legal cannabis markets even more challenging and expensive. 

As of now, legal cannabis businesses are losing up to between 65% and 75% of annual gross profits to taxes. 

If cannabis is reclassified as a Schedule 3 substance, owning and operating a cannabis business will become more affordable and comparable to running a “regular” business. This is because cannabis businesses will have the ability to deduct typical expenses from their federal taxes. Such expenses include rent, payroll, insurance, marketing, and more.

Movement Towards Federal Legalization

Reclassifying cannabis is the first step towards federal legalization. Federal legalization would open up even more opportunities for cannabis business owners.

One significant advantage of federal legalization for recreational or medical cannabis would be that dispensaries would be able to accept credit card payments. Major credit card processors don’t allow purchases of Schedule 1 substances under their network. So unless cannabis is federally legalized or the SAFER banking act is passed, you won’t be able to buy cannabis with a credit card. This is problematic for dispensary owners since payment by credit card is very popular.

Federal legalization would also introduce the possibility of interstate trading of cannabis and cannabis products. This would allow the industry to drastically expand, open up a lot of investment, employment, production, sale, and revenue opportunities for businesses and the country as a whole. 

Reclassification Promoting Greater Cannabis Research

Schedule 1 substances are classified as drugs that have no medicinal use, are likely to be abused, making them highly controlled. Drugs that fall into this category include heroin, lysergic acid diethylamide (LSD), methylenedioxymethamphetamine (ecstasy), and various other substances that are commonly known as illicit drugs. 

Cannabis is currently classified as a Schedule 1 substance, despite its medicinal uses and the various established medical cannabis markets that exist throughout the US. Reclassifying cannabis to Schedule 3 would officially recognize that the plant has medicinal uses, which would allow it to be used by pharmaceutical companies.

As a result, scientists and pharmaceutical companies will have more reason to research the plant and understand its effects. There will also be fewer legal barriers in doing so. 

What Happens Next?

A public review period will take place which may present challenges and potential alterations to the rescheduling proposal. After the public comment period ends, the Office of Management and Budget evaluates the decision. Congress could potentially overturn the ruling, but it’s very unlikely.

This is because they currently hold a majority in the Senate with 51 seats, and overturning the ruling would require two-thirds support from both the House and the Senate. Given this threshold, it’s likely that cannabis will be reclassified from Schedule 1 to Schedule 3. 

Interested in Starting a Cannabis Business?

CannDelta’s cannabis consultants can help you start your cannabis business. Our team has experience all across the US helping businesses establish themselves in the recreational and medical cannabis markets. We assist with every step of the process, from initial applications and licensing support, all the way to site build-out and marketing. Regardless of what step of the process you’re at, CannDelta can help. Get in touch with us today by filling out a form below!