In October 2022, President Biden instructed the Department of Health and Human Services (HHS) and the Attorney General to initiate a review of how marijuana is scheduled under federal law. HHS submitted a recommendation memorandum to the Drug Enforcement Administration in August 2023. The White House Office of Management and Budget (OMB) will review the proposed rule before publishing in the Federal Register. The Office of Information and Regulatory Affairs (OIRA) has up to ninety days to review the proposed rule. Once approved by the OMB and published in the Federal Register, the proposed rule will become available publicly during a comment period of 60 days. The public comment period started on May 21, 2024 and ends July 22, 2024. With public comments, it is likely that there will be a hearing with the Administrative Law Judge (ALJ), who will give interested parties the opportunity to provide support or opposition to rescheduling. After the ALJ hearing and comment period, the DEA will consider the public's input before providing a final ruling. It is possible that the ruling could become effective before the election in November.
If approved, cannabis would be reclassified to a Schedule III controlled substance. Rescheduling would ease restrictions while acknowledging the drug's medical benefits with the potential of abuse. Reclassification would be the first time that the federal government recognizes potential medical benefits. Pharmaceutical companies and Universities with a Schedule III DEA license would be able to conduct research.
Importantly, reclassification of cannabis would also remove I.R.C 280E implications for cannabis businesses and allow them to take the same federal tax deductions as any other business. Currently, businesses involved in the sale of controlled substances (Schedule I and II) are not permitted to deduct any selling and administrative expenses incurred during the taxable year. Section 280E results in cannabis businesses paying significantly higher taxes. These taxes are a major stress on the companies cash flow and ability to operate.
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