WHAT DOES THE RECLASSIFICATION OF MARIJUANA MEAN FOR THE U.S. CANNABIS INDUSTRY?

The Drug Enforcement Administration (DEA) is preparing to reclassify marijuana in the U.S. as a less dangerous drug, according to new reports, and cannabis company CEOs say the move is long overdue. A DEA proposal reportedly seeks to reclassify marijuana from a Schedule I narcotic—a category that includes cocaine, fentanyl, and heroin—to a Schedule III narcotic, which includes ketamine, codeine, and steroids.

If marijuana is reclassified as a Schedule III narcotic, there will immediately be more opportunities for companies to invest in research and development.

For example, cannabis company CEOs are hoping their businesses will no longer be subject to Section 280E, a part of the IRS tax code that limits their ability to take deductions and increases their effective tax rate. Returning that money to the business could make the industry more attractive to institutional investors and pharmaceutical companies, explained Darin of Curaleaf, noting that Curaleaf could save more than $150 million in excess tax contributions to the government.

The proposal will still need to go through a long process to be finalized and, more importantly, will not legalize the substance in the U.S., but federal reclassification of marijuana has been a long-term goal for the cannabis industry.

A growing number of states support the legalization of marijuana. Currently, recreational cannabis use is legal in 24 states, while medical use is legal in 38 states.

“The FDA’s findings were actually that marijuana is safer than alcohol in many ways, which is interesting to have on record,” said Rivers, CEO of Truelieve. “It’s really a crucial first step as we think about further regulatory and policy changes for the industry.”

Reclassification could help normalize banking practices for the marijuana industry, helping it gain access to loans and move away from operating as a cash-only business. This could help small and minority-owned businesses continue to grow.

ALEXANDRA SUÁREZ

@highmommas