Would rescheduling cannabis be good news for the industry?

Cannabis may be on its way to being less restricted in the U.S. after a recent recommendation from the Health and Human Services Department to reschedule the drug's classification. Last week, the HHS recommended that the U.S. Drug Enforcement move marijuana from Schedule 1, the strictest category, down to Schedule 3. The news came after President Joe Biden asked the HHS and the attorney general to review how marijuana fits within the drug classification system.

While this isn't the first time cannabis classification has come into question, experts believe the recommendation may stick this time. And while many are celebrating what they consider a step in the right direction, others aren't as enthusiastic about what that reclassification could mean.

How the government categorizes drugs

Under the Controlled Substances Act of 1970, certain substances are federally prohibited based on their potential for abuse and their varying degrees of medical use. The CSA is a national legal framework covering how all 50 states regulate the substances federal agencies deem dangerous. The severity of the drugs is categorized into five levels that the DEA calls schedules. The DEA has been responsible for enforcing the CSA while the Food and Drug Administration determines the medical efficacy of the drugs.

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Cannabis has been classified in the strictest category, alongside drugs like heroin, LSD and ecstasy. To meet the criteria for this category, the substances must have "no currently accepted medical use" and a "high potential for abuse," per the DEA. The HHS recommended that cannabis be regrouped with Schedule 3 substances like ketamine, anabolic steroids, and Tylenol with codeine, which has a lower risk for abuse.

Ultimately, that change will lie in the hands of the DEA, which could take months to finish its evaluation. And with the growing number of states starting medicinal or recreational cannabis programs, the chasm between state and federal regulation is growing. This has made the issue "increasingly urgent for U.S. policymakers," Jonathan Roeder said in a Bloomberg newsletter. "Illicit competitors have taken advantage of the gray area to undercut licensed companies, which are also suffering from high taxes and scant access to financing," he added.

What rescheduling cannabis means and what it doesn't

Rescheduling will not automatically make cannabis legal. Schedule 3 drugs are still controlled substances that are "subject to various rules that allow for some medical uses and for federal criminal prosecution of anyone who traffics in the drugs without permission," The Associated Press stated. Still, reclassifying the drug has the potential to alleviate some of the financial pressure existing cannabis businesses are under and to open the door to more scientific research into the potential healing benefits of the drug.

The U.S. cannabis industry is hurting due to lack of capital, uniquely burdensome taxes, and nearly unfettered competition from unlicensed operators," Adam Goers, a co-chair of the Coalition for Cannabis Scheduling Reform, told Bloomberg. Rescheduling will "provide a massive boost to our industry," he added, "particularly social equity and small business owners who have suffered the most under the status quo."

Zachary Kobrin, a lawyer specializing in cannabis, agreed that the move would help the bottom line for the industry. He described Section 280E of the federal tax code, which prohibits companies from taking tax deductions if they sell an illegal substance, as "one of the most negatively impactful policies" on the industry in a statement to Bloomberg. "Cannabis companies currently have effective tax rates as high as 70% to 90%," Kobrin said.

Not everyone is on board with the HHS recommendation. Paul Armentano, the deputy director of the National Organization for the Reform of Marijuana Laws (NORML), told the AP that reclassifying the drug would only perpetuate the "existing divide between state and federal marijuana policies." In an op-ed for NORML, Armentano also noted that it "continues to misrepresent the plant's safety relative to other controlled substances."

Kaliko Castille, the president of the Minority Cannabis Business Association President, agreed that rescheduling just "rebrands prohibition" instead of making things more transparent for state licensees or reversing the decades of disproportionate policing of people of color. "Schedule III is going to leave it in this kind of amorphous, mucky middle where people are not going to understand the danger of it still being federally illegal," he said to the AP.