The Justice Department says it is interested in receiving public comments on the “unique economic impacts” of its marijuana rescheduling proposal given that state-level legalization has created a “multibillion dollar industry” that stands to benefit from possible federal tax relief under the reform.
In its notice of proposed rulemaking that’s set to be published in the Federal Register on Tuesday, DOJ said “marijuana is subject to a number of State laws that have allowed a multibillion dollar industry to develop,” and the department “acknowledges that there may be large impacts related to Federal taxes and research and development investment for the pharmaceutical industry, among other things.”
The Justice Department’s move to place cannabis in Schedule III, rather than Schedule I, of the Controlled Substances Act (CSA) has already generated intense public interest. And the 60-day public comment period that will formally open this week is expected to see a wide-range of feedback from advocates, stakeholders, opponents and others.
But DOJ said in its draft notice posted on Thursday that it is “specifically soliciting comments on the economic impact of this proposed rule. DOJ will revise this section at the final rule stage if warranted after consideration of any comments received.”
The department also said it’s “concluded that this action may have a significant economic impact on a substantial number of small entities,” in large part because a current ban that prevents state-licensed cannabis businesses from taking federal tax deductions under an Internal Revenue Service (IRS) code known as 280E “would no longer serve as a statutory bar” if marijuana is moved to Schedule III.
“If marijuana is ultimately transferred to schedule III, section 280E would no longer serve as a statutory bar to claiming deductions for those expenses.”
“In addition, small entities engaged in research on marijuana may be subject to different research protocols set by [the Drug Enforcement Administration] DEA if the research is conducted on a schedule III substance rather than a schedule I substance,” the notice says. “However, DOJ is currently not in a position to estimate the number of small entities affected by these or other potential effects of this action. DOJ seeks comment and additional information to inform its analysis.”
When President Joe Biden announced the administration’s rescheduling action on Thursday, he described it as consistent with his belief that nobody should be jailed over cannabis possession. As a statutory matter, that wouldn’t necessarily apply with simple rescheduling because it’d remain federally illegal. But the White House has not publicly commented on the economic impacts of the incremental reform.
On the one hand, many advocates have welcomed the rescheduling determination, given that it represents the first time in over 50 years that the federal government has recognized the medical value and relatively low abuse potential of a plant that’s been legalized in some form in the vast majority of states.
On the other hand, activists have emphasized that rescheduling does not federally legalize marijuana or provide corrective relief to people who’ve been criminalized over it. And, of course, prohibitionists have urged DEA to keep marijuana in Schedule I and are expected to litigate if the agency moves forward with the incremental reform.
DEA Administrator Anne Milgram has also acknowledged the possibility of an administrative hearing to gain further input on the decision before its finalized.
The Congressional Research Service (CRS) has also weighed in on the rescheduling development, saying in a report that while it was “likely” that DEA would enact the policy change, that would not bring state markets into compliance with federal law. It added that Congress still has the authority to address the federal-state cannabis policy gap “before or after” that reform is enacted.
To that end, Senate Majority Leader Chuck Schumer (D-NY) and colleagues have reintroduced legislation to federally legalize cannabis and impose certain regulations. The bill’s prospects are dubious in the current divided Congress, however.
Meanwhile, the top Democrat in the U.S. House said that the Biden administration’s move to reschedule marijuana is a “step in the right direction,” but it should be followed up with congressional action such as passing the legalization bill Schumer filed.
In a recent interview with Fox News, former DEA Administrator Asa Hutchinson said it “absolutely looks like” the agency will follow through with moving marijuana from Schedule I to Schedule III under the CSA.
Biden has separately issued two rounds of mass pardons for people who’ve committed federal marijuana possession offenses. Again, a Schedule III reclassification would not legalize cannabis or free people still incarcerated over cannabis.
It should also be noted that, during his run for the presidency, Biden pledged to move cannabis to Schedule II—a stricter category compared to what’s been proposed by his administration.
Biden ‘Smokes’ Trump On Marijuana Policy, Campaign Says After President’s Rescheduling Announcement
