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DEA’s Stance on Re-scheduling Cannabis: What It Means for Businesses

In a long-awaited announcement, the DEA recently released an opinion in favor of rescheduling cannabis from Schedule I to Schedule III. While there have been rumblings for years, the new official opinion could redefine the industry…eventually. The government machine grinds slowly, which means it could still be a year or two (or more) before full legalization.

Potential Implications of Schedule III for Cannabis Businesses

While many of the implications of a Schedule III (essentially over-the-counter) designation are likely positive, there are some potential ramifications that could complicate operations. Let’s break down the biggest changes we’re likely to see

Improved Access to Banking Services

One of the biggest challenges for cannabis businesses continues to be limited access to banking and financial services due to federal restrictions. Rescheduling could ease these constraints, allowing businesses to operate more securely and efficiently. 

What’s more, while still likely to be a cash-heavy industry that can still benefit from cash-handling machines, cannabis companies—dispensaries, in particular—will be better able to process card transactions. And in turn, consumers will be able to use cards to pay without putting their account status or access at risk.

Access to “Normal” Tax Deductions

Section 280E of the Internal Revenue Code prevents cannabis businesses from deducting ordinary business expenses, resulting in high tax burdens. Under the current schedule, the only deductions allowed are cost of goods sold. Access to new deductions has the potential to make a huge impact on profitability and sustainability.

Simplified Business Entities

Because of the tax deduction limitations, many cannabis business owners have multiple entities to keep expenses separate. For example, one might hold real estate, one marketing, and one business management. Under the new scheduling, cannabis businesses may be able to consolidate their entities and save money.

Increased Research and Development Time

A Schedule III designation means that cannabis would fall under the FDA instead of the DEA, which could mean that products would be subject to FDA approval, and more extensive R&D on new products and treatments. While it could lead to innovation and growth within the industry, it might mean putting the breaks on product development.

What’s Next for Cannabis Businesses?

While the DEA’s opinion is a significant step, the rescheduling process involves various governmental agencies and could take time. Ultimately, the seed-to-sale reporting requirements under 280E and Schedule I aren’t going away anytime soon. And candidly, they might never go away. 

So what should you do now? Keep your focus on growing your business, delivering great products and services, and staying on top of reporting and tracking. All the while, stay informed so you can make any needed shift when it comes time to adapt to these changes. 

It’s important to look at experienced cannabis accountants and legal advisors as extensions of your team and critical elements to navigate rapidly changing developments. 

Final Thoughts

The DEA’s support for rescheduling cannabis is promising, but cannabis remains Schedule I for the time being. And with all the upheaval that comes in an election year, I’d be surprised if there’s any movement before 2025. I’m staying tuned for now.

Looking for additional reading? Woodard has a great report and I recommend following Charlotte Cathro for her take, as well.

LINKEDIN: There’s a lot of buzz around the DEA’s recommendation to de-schedule cannabis and move it from Schedule I to Schedule III (think over-the-counter products like Tylenol).

These days, it’s less a matter of “Will they or won’t they?” and more a question of “When will it happen?” However, there’s a lot of chatter around what de-scheduling actually means for cannabis businesses.

Ultimately, there’s a lot of good news, some potentially negative impacts, and plenty of questions that remain. I’m breaking it down to a high level in the latest blog post on Accounting for Green.

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