DEA Considers Groundbreaking Shift in Marijuana Classification: What It Means for the Cannabis Industry
This week saw the U.S. Department of Health and Human Services (HHS) formally request the Drug Enforcement Agency (DEA) to reconsider marijuana‘s status under the Controlled Substances Act. This move could unlock substantial growth for an industry that’s been restricted by federal regulations, even as more states embrace legalization.
In light of the news, several cannabis stocks, including Aurora Cannabis, Canopy Growth, and Tilray Brands, experienced a surge. This positive trend continued into Thursday as well.
Since its initial categorization in the 1970s, marijuana has been grouped with heroin and LSD as a Schedule I substance, considered by authorities to have no medical benefits and a high likelihood of abuse. Despite progressive changes in scientific research and state laws, marijuana still maintains this designation, ranking above substances like fentanyl, cocaine, and methamphetamine.
The DEA is mulling the reclassification of cannabis as a Schedule III substance, joining substances like ketamine and anabolic steroids, which have a moderate to low potential for dependence. However, this reclassification won’t entirely lift federal restrictions on its cultivation, production, and sales. Currently, marijuana enjoys legal status for medical use in 39 states and recreational use in 23 states.
As part of this significant review, HHS has conducted a thorough scientific and medical analysis to assist authorities in their final decision. Roth MKM analyst Scott Fortune predicts that a verdict will likely arrive before the 2024 presidential election and emphasized that the DEA has historically followed HHS recommendations.
The DEA will evaluate marijuana based on its abuse potential, medical utility, and safety profile. Considering medical cannabis programs are operational in nearly 40 states, sticking with the current Schedule I classification may prove challenging.
Once a decision is reached, the DEA will forward its recommendation as a proposal to the Attorney General for the final say.
What does this mean for the cannabis industry? If marijuana is downgraded to a Schedule III substance, numerous restrictive barriers are likely to be eased. Companies will benefit from new tax opportunities, as current laws prevent enterprises dealing with Schedule I substances from writing off expenses under IRS code 280E.
The change would also enable interstate commerce, boost research possibilities, attract investment, and potentially revitalize publicly traded marijuana stocks. However, challenges with traditional banking and loans will persist until federal laws change.
On a broader scale, Senate Majority Leader Chuck Schumer stated that this action represents a critical step toward ending the federal prohibition on cannabis. Industry leaders echo Schumer’s sentiments, seeing this as a move closer to dismantling the U.S. government’s ill-fated war on marijuana.
