The proposal

Marijuana will be a less heavy drug in the US. And it will be good for business

The Justice Department's move after the Department of Health recommended reclassifying cannabis as part of the review ordered by Biden

1 May 2024

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The US Department of Justice is moving to make the use of marijuana a less serious federal crime: in summary, the proposal is to reclassify the drug on a par with Tylenol with codeine, instead of with harder drugs such as heroin as it currently is.

This reclassification - explains the Reuters news agency - represents a first step towards homogenisation between state and federal cannabis laws. The drug, in fact, is already legal in some form in nearly 40 states. Although rescheduling would not make cannabis legal, it would open the door to more research and medical use, resulting in lighter criminal penalties and more investment in the industry. The Justice Department's move came after the Department of Health and Human Services in August 2023 recommended rescheduling cannabis as part of a review ordered by President Joe Biden. The Drug Enforcement Administration (DEA) declined to comment.

Here is what could change.

What does reclassification entail

Under the Controlled Substances Act,' writes Mrinalika Roy in the Reuters in-depth article, 'marijuana is now listed as a 'schedule 1' substance, which means it has a high potential for abuse and no currently accepted medical use.

The Department of Justice, which oversees the Drug Enforcement Administration, has recommended that cannabis be classified as a so-called 'schedule 3' drug, with moderate to low potential for physical and psychological dependence.

The bureaucratic steps

According to analysts at TD Cowen, the review of the proposal by the Office of Management and Budget will probably last until the end of May or June. After that, the proposal will have to be published in the Federal Register and there would be a period for collecting comments. The DEA will then have to consider the comments and will also have to hold a hearing before an administrative judge. It should be remembered that in 2020 the UN recognised the therapeutic properties of cannabis. Public support for the legalisation of marijuana in the United States has increased significantly in recent decades, reflecting the growing acceptance of recreational and medicinal use of cannabis. Colorado and Washington became the first states to allow recreational marijuana in 2012.

The tax implications

For cannabis businesses, the change would mean no longer being subject to Section 280E of the US federal tax code. This provision prevents companies trading in Schedule 1 and 2 controlled substances from claiming tax credits and deductions for business expenses. The tax change would inject nearly $3.5 billion in cash back into the industry, which will reduce the overall cost of capital for the industry and trigger a flurry of M&A activity, said Katan Associates International founder Seth Yakatan.

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The impact on business

If the classification of marijuana were to be loosened at the federal level, this could allow major stock exchanges to list cannabis businesses and potentially allow foreign companies to begin selling their products in the United States.

While many states have legalised the medical or recreational use of cannabis, its illegal status under US federal law has forced most major banks to deny their services to cannabis-related businesses.

Equal treatment

Biden and Vice President Kamala Harris are seeking to bolster support from the black community for their re-election bid against former President Donald Trump. According to the American Civil Liberties Union, black Americans and communities of colour have been disproportionately affected by drug enforcement for decades, with blacks 3.6 times more likely than whites to be arrested for marijuana possession, despite similar rates of use. According to data from the Pew Research Center, black and white Americans used marijuana at roughly comparable rates in 2020, yet blacks accounted for 39% of all marijuana possession arrests in the United States, despite then making up only 12% of the US population.