Federal Health Agency Recommends DEA Reclassify Cannabis to Schedule III

In a historic milestone in federal cannabis reform, the US Department of Health and Human Services (HHS) has urged the Drug Enforcement Administration (DEA) to reclassify cannabis from Schedule I to Schedule III, opening the dual possibility of researching the plant’s therapeutic potential and expanding the cannabis industry. 

The recommendation signifies the HHS’s shift in perspective regarding cannabis; instead of viewing it as a substance with high potential for abuse and no medical application, the HHS now recognizes the plant’s potential benefits. This recommendation appears to align with the department’s aim to “protect the health of the US people and providing essential human services,” per its motto of “Improving the health, safety and well-being of America.”

Recommendation Comes Following an Administrative Review of Federal Cannabis Scheduling

The HHS’s recommendation follows an administrative review of cannabis’ current Schedule I classification requested by President Joe Biden to the Secretary of HHS and the attorney general in 2022. After thorough scientific assessment, the findings prompted the HHS to propose moving cannabis to Schedule III. Although not legally binding, this recommendation carries significant meaning.

In a comment to Marijuana Moment, an HHC spokesperson said, “Following the data and science, HHS has expeditiously responded to President Biden’s directive to HHS Secretary Becerra and provided its scheduling recommendation for marijuana to the DEA on August 29, 2023. This administrative process was completed in less than 11 months, reflecting this department’s collaboration and leadership to ensure that a comprehensive scientific evaluation be completed and shared expeditiously.”

During a briefing on Wednesday, White House Press Secretary Karine Jean-Pierre reinforced that the president asked the Secretary of HHS and the attorney general to review how cannabis is scheduled and that it’ll be an “independent process.”

“As you know, the administration process is an independent process, led by HHS, led by the Department of Justice and guided by evidence, so I’m going to leave it to HHS and DOJ to move that process,” Jean-Pierre said.

Opportunities for the Cannabis Industry

If the DEA were to adopt the HHS’s proposal to reclassify cannabis as a Schedule III substance, it would lead to significant political and economic developments.

The reclassification would enable cannabis businesses access to federal tax deductions, a privilege currently denied to companies with Schedule I or II products. The change would lead to financial consequences, as the cannabis industry has faced significantly higher tax rates due to this limitation. 

Patrick Rea, Managing Director of Poseidon Garden Ventures, says they’re cautiously optimistic about the news.

“Certainly, moving cannabis off Schedule I is the right decision and long overdue. Though a full descheduling would be preferred and likely most appropriate for cannabis, we welcome smart decisions and progress towards full legalization and regulation in the legal cannabis industry,” Rea said. “We’ll follow the federal government’s progress towards Schedule III with specific attention to how this impacts investment strategies and returns, just as we have done since 2013. The federal government needs to act to participate in shaping the legal cannabis industry. We welcome these positive outcomes from a formal review of cannabis placement on the CSA. With cannabis moving to Schedule III, the industry expects IRS Code 280E to no longer apply to marijuana businesses, resulting in much lower effective tax rates for businesses across the industry.”

Autumn Shelton, chief financial officer of California-based Autumn Brands, echoes the sentiment that removing the 280e “tax burden” would be welcomed by cannabis companies and help remove lingering negative stereotypes pertaining to the plant.

“This is truly an incredible moment! While ideally, we want to see cannabis descheduled, we understand that even little victories are important on our journey to federal legalization,” Shelton told Cannabis Now. “Moving from a Schedule I would be a great step towards legalization and removing the remaining stigma. It would also eliminate the 280e federal tax burden that so many legal State businesses struggle with. 280e doesn’t allow businesses to deduct normal expenses, meaning their federal net income could be hundreds of thousands to millions of dollars more than it is, thus owing more in taxes than their net income. I know many passionate people have been working hard behind the scenes to make this happen. Come on, DEA and President Biden! Let’s do this!”

Additionally, the reclassification would benefit cannabis researchers by removing the draconian DEA registration process necessary to obtain cannabis for studies, a requirement linked to Schedule I categorization.