Last month, President Joe Biden officially announced his intention to reclassify marijuana under the Controlled Substances Act. This significant move would shift marijuana from Schedule I — the most restrictive category — to Schedule III. This reclassification would place marijuana in the same category as anabolic steroids, ketamine, and testosterone, recognizing its medical benefits while acknowledging 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 noted in a post on X, formerly Twitter. “That just doesn’t add up.”
Federal Shift and Its Impact on Kentucky
Reclassifying marijuana as a Schedule III drug does not equate to federal legalization. However, it could reduce the tax burden on cannabis businesses operating in states where marijuana is legal for recreational or medicinal use. This change is particularly relevant for businesses in Kentucky preparing 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,” stated Brice Mitchell, spokesperson for the Kentucky Cabinet for Health and Family Services.
Currently, under federal law (26 U.S. Code §280E), marijuana businesses cannot deduct their business expenses due to its Schedule I classification. Rescheduling to Schedule III would eliminate this prohibition, allowing these businesses to deduct their expenses. This change could significantly reduce their taxes by 40{d155401c9f5543f8138dc1769c3f5c029ac2c38547be62bd5af0b08231d0755d} to 70{d155401c9f5543f8138dc1769c3f5c029ac2c38547be62bd5af0b08231d0755d}, according to a CBS News report. In 2022, compliant cannabis businesses paid an estimated $1.8 billion in excess taxes.
Benefits Beyond Tax Relief
The reclassification is also expected to ease banking restrictions. Banks and credit card companies, currently cautious of cannabis businesses due to legal ambiguities, may become more willing to engage with the industry.
Additionally, reclassification could benefit research. As Mitchell explained, “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.
Overall, while reclassifying marijuana to Schedule III is not the same as legalization, it represents a significant shift in federal policy that could have widespread positive implications for the cannabis industry, particularly in states like Kentucky preparing to expand their medical cannabis programs.
