With the U.S. Department of Health and Human Services (HHS) officially recommending cannabis be moved from a Schedule I drug to a Schedule III drug, the cannabis industry is one step closer to alleviating interstate commerce and tax concerns.

The recommendation comes after President Joe Biden said his administration would review the federal scheduling of marijuana, and provides a sign that the top health agency no longer considers cannabis to be a drug with high abuse potential and no medical value.

HHS recommended to the U.S. Drug Enforcement Agency that cannabis be moved to Schedule III of the Controlled Substances Act. As a Schedule III drug, cannabis would still be illegal under federal law, but the change would ease some restrictions presently imposed on the cannabis industry and represent an important step toward full legalization.

HHS conducted a scientific and medical evaluation of the drug. Marijuana has been listed alongside heroin and LSD as a Schedule I drug, which includes substances with a “high potential for abuse and no real medical value.” As a Schedule III drug, cannabis would be listed alongside drugs like anabolic steroids, having a low risk of abuse and legitimate medical value.

Experts believe the DEA review will likely be complete before the next presidential election in 2024.

Even if moved to Schedule III, cannabis will still be illegal federally, despite being legal in 39 states for medical use and 23 states for recreational use. Cultivating, producing and selling will be illegal under federal law.

But the move would loosen several restrictions, to the benefit of the legal (in states) industry. For one, cultivators, processors and retailers would be able to write off expenses on their federal tax forms – a practice that is currently prohibited and contributes to high tax rates.

Cannabis operators also would be able to transport product across state lines for sale. Interstate commerce is illegal for Schedule I substances, but not Schedule III drugs.

Banking restrictions, however, would remain in place.

For many in the industry, even rescheduling cannabis as a Schedule III drug is insufficient. Industry advocates want the drug descheduled entirely, removing it from the Controlled Substance Act and likening cannabis to alcohol.

Attorneys with Harris Beach’s Cannabis Industry Team continue to monitor developments in the fast-moving New York cannabis industry. If you have questions about this lawsuit or related matters, please reach out to attorney Meaghan T. Feenan at (518) 701-2742 and mfeenan@harrisbeach.com, attorney William M.X. Wolfe at (315) 214-2059 and wwolfe@harrisbeach.com, or the Harris Beach attorney with whom you most frequently work.

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