Federally reclassifying weed means Marijuana businesses will flourish in KY
President Biden Advances Plan to Reclassify Marijuana as Schedule III Drug.
Last month, President Joe Biden officially announced he was moving forward with a plan to reclassify marijuana under the Controlled Substances Act.
The move would see the drug moved from Schedule I — the most restrictive category — to the moderately restricted category of Schedule III. It would place marijuana in the same category as anabolic steroids, ketamine and testosterone — drugs that have some medical benefit, but also carry some risk of abuse.
“Right now, marijuana has a higher-level classification than fentanyl and methamphetamine — the two drugs driving America’s overdose epidemic,” Biden wrote in a post on X, formerly Twitter. “That just doesn’t add up.”
What does the federal shift in marijuana policy mean for KY?
To be clear, reclassifying marijuana as a Schedule III drug is not the same as legalizing it at the federal level.
But it does stand to decrease the tax burden of cannabis businesses operating in states where marijuana is legal, either for recreational or medicinal use.
That includes businesses in Kentucky currently gearing up for the launch of the state’s medical cannabis program in early 2025.
“The Drug Enforcement Administration’s reported reclassification of marijuana from a Schedule I to a Schedule III controlled substance will likely have significant tax implications for prospective licensees,” Kentucky Cabinet for Health and Family Services spokesperson Brice Mitchell said in an emailed statement.
“Because marijuana is currently a Schedule I controlled substance, under current federal law (26 U.S. Code §280E) marijuana businesses, unlike other businesses, cannot deduct their business expenses on their federal tax filings,” Mitchell told the Herald-Leader. “By rescheduling marijuana to a Schedule III, marijuana businesses will not be subject to the prohibition in Section 280E, and thus will be able to deduct their business’ expenses.”
That would let cannabis businesses knock anywhere from 40% to 70% off their taxes, according to a CBS News report. An estimate from a cannabis industry research firm suggests state-compliant businesses paid $1.8 billion in excess taxes in 2022.
A federal reclassification should also reassure banks and credit card companies wary of dealing with cannabis businesses they perceive as legally-gray and risky.
Reclassification poses potential benefits for researchers as well, as explained by Mitchell.
“Currently, the Drug Enforcement Administration is required to set annual production quotas for Schedule I controlled substances manufactured for use in approved research. DEA is not required to set annual production quotas for Schedule III controlled substances. As a result, there may be more marijuana available for approved federal research.”
