On May 16, 2024, the Department of Justice ("DOJ") issued its Notice of Proposed Rulemaking related to the transfer of marijuana from schedule I of the Controlled Substances Act ("CSA") to schedule III ("NPRM"), consistent with the recommendation provided by the Department of Health and Human Services ("HHS") in August 2023. The CSA requires that rescheduling must be accomplished through a formal rulemaking process and public comment starting 60 days from the date of publication in the Federal Register.
Pursuant to the HHS Recommendation and the corresponding NPRM, the basis for rescheduling marijuana is based on the view that marijuana has a currently accepted medical use and lower propensity for abuse potential and physical or psychological dependence. While many believe rescheduling is a positive step forward for marijuana, the recreational marijuana markets may see only one true benefit from rescheduling.
Specifically, rescheduling is expected to eliminate the bar on claiming a federal deduction for marijuana business expenses under Section 280E of the Internal Revenue Code, opens new tab for both recreational and medicinal marijuana enterprises because, by its plain terms, the Section 280E, opens new tab bar only applies to trafficking in schedule I and II controlled substances. Section 280E, opens new tab prevents marijuana businesses from claiming tax credits and deductions for ordinary business expenses, including salaries, rent, utilities, travel and property expenses.
Yet, it is unclear what reclassification could entail or how it would affect recreational/adult-use marijuana enterprises. For example, the DOJ's NPRM states, within its summary, that "if marijuana is transferred into schedule III, the manufacture, distribution, dispensing, and possession of marijuana would remain subject to the applicable prohibitions of the CSA." Thus, at this point it still unknown how the recreational market may be affected, outside of the benefits of the 280E no longer being applicable to marijuana.
Read more at reuters.com