Most Americans support the legalization of cannabis at the federal level. Nearly all Americans support the legalization of medicinal cannabis. This is not a new development. It’s been like this for years. And it’s a rare bipartisan issue. While support has been at an all-time high in recent years, a number of federal election cycles have come and gone. One would think that on a bipartisan unicorn issue with majority and super or even ultra majority support, the federal government would have figured something out by now. But no.
There will be no federal cannabis legislation
When California opened up to recreational cannabis licensing in 2018, all I heard was that federal cannabis legalization was imminent. In fact, many companies are basing their business model on federal cannabis legalization taking place. Remember when the MORE Act, the PREPARE Act, the States Reform Act, the Cannabis Administration and Opportunity Act, HR 420, or any other legalization act was “close to implementation”? Yes, about that…
What many cannabis advocates fail to realize is that support for legalizing cannabis at the 30,000-foot level is difficult to translate into actual legislation that can garner bipartisan support. The federal government cannot simply legalize cannabis – it must create a legal framework for this. And this is where the shit hits the steamer. To reach a compromise, Democrats had to waive some equity rules, while Republicans had to waive some business rules. And nobody seemed able to compromise.
So, instead of federal cannabis legalization, we got a series of misguided attempts at gradual legalization, most notably the SAFE Banking Act, which as I write this is suffering the fate described above because Congress is unable to commit to one Principle to some compromise despite Herculean lobbying.
So here’s my first prediction: Even if cannabis is legalized at the federal level should Be low hanging fruit, this will not happen. At least not in Congress, and at least not before the 2024 general election.
There will likely be changes in cannabis administration at the federal level
Which brings me to the administrative side of things. Last October, President Biden pardoned some retrospective offenses for simple possession of cannabis and also announced the following:
I am asking the Secretary of Health and Human Services and the Attorney General to initiate the administrative process to expeditiously review how marijuana is regulated under federal law. Federal law currently classifies marijuana under Schedule I of the Controlled Substances Act, the classification for the most dangerous substances. This is the same timeline as heroin and LSD, and even higher than the classification of fentanyl and methamphetamine – the drugs that are causing our overdose epidemic.
Since then, the federal government has apparently taken this letter seriously. For example, I recently spoke to MJBizDaily about how states are sharing medical cannabis data with the federal government as part of this process. And at least some people are suggesting the date shift will come later this year.
Here’s my second prediction: The federal government will relist cannabis, but not remove it entirely from the Controlled Substances Act (CSA). I prefer a full postponement of dates and a move to the States (see here and here) but that seems unlikely for a number of reasons. For starters, Biden’s announcement (reading between the lines) essentially calls for a debt restructuring rather than a debt restructuring. Second, Biden (the guy we rated “D” for cannabis) himself called for listing cannabis on Schedule II. Third, the federal government is looking medical data by states, which is relevant to determining the correct CSA schedule.
So all of this means that there will likely be federal rescheduling of cannabis, just not by Congress.
Schedule II (poor) or Schedule III (less bad)
My third prediction is that cannabis will end up on schedule II or III. Either way, not much will change from a government regulatory perspective. No state regulatory program will conform to federal law if cannabis is on a CSA plan. Just think of someone selling anabolic steroids with a state license but no DEA registration. No! Likewise, a debt restructuring will not necessarily lead to an easing of restrictions on consumers. Illegally purchased prescription drugs are illegal, and illegally purchased cannabis would be, too.
The biggest change, however, would be federal tax legislation. The reason for this is Section 280E of the Internal Revenue Code, which provides:
No deduction or credit is allowed for amounts paid or accrued during the tax year in the carrying on of a trade or business where that trade or business (or the activities comprising such trade or business) controlled in trade with substances consists (as defined in Schedules I and II of the Controlled Substances Act) which is prohibited by federal law or the law of any state in which such trade or business is conducted.
Companies that “trade” controlled substances under PLAN I OR II are not eligible for standard tax deductions. This is one of the main, if not THE, main reason the cannabis industry is in trouble right now. If cannabis is transferred to Schedule II, the tax burden does not change. If it transitions to III or (less likely) IV or V, the tax problem will at least be mitigated going forward.
When 280E disappears, you will see a sea change in the cannabis industry. Razor-thin edges will be less thin. Investments that have largely dried up will come back with vigor. And so forth. It will be a game changer. But only if cannabis reaches levels III or below.
Something will happen before the parliamentary elections
I don’t want to be cynical (okay, I’m totally cynical), but I expect the shift will happen around the time of the 2024 election. Why? Because it will give the current government a boost. And since a number of swing states like Pennsylvania have adopted cannabis, the current administration needs to do just that to maintain government control.
It’s really hard to predict how state cannabis laws will play out, and I usually shy away from joining the “legalization is coming” crowd. The US Congress is perhaps the most inept it has ever had, and we are dealing with an administration that still treats cannabis the same as heroin and more strictly than opioids. But given the electoral cycle and administrative process already underway, I think it’s safe to say that something will happen next year. Whether that’s a good or bad thing in the end remains unclear.
