In a groundbreaking move, President Donald Trump has issued an executive order to reclassify cannabis from a Schedule I drug to a Schedule III drug. This pivotal change marks a significant shift in how marijuana is perceived at the federal level, promising to reshape medical research and alleviate financial pressures on marijuana businesses across the nation.
Historically defined as a Schedule I drug, cannabis has faced scrutiny due to its classification alongside substances like heroin, which are deemed to have no accepted medical use and a high potential for abuse. With the new classification as a Schedule III drug, which includes less risky substances like Tylenol and ketamine, research into the medical benefits of cannabis can expand significantly. This change is expected to facilitate increased studies into cannabis’s therapeutic properties, especially for chronic pain and various medical conditions.
“As soon as it goes into place, you’re going to start to see more studies,” said Jerry Millen, owner of the Greenhouse Dispensary in Walled Lake, Michigan. “You’ll see attitudes start to change even more around cannabis.”
The reclassification is anticipated to ease financial strains on Michigan cannabis businesses by reducing tax burdens. Currently, because cannabis is classified as a Schedule I drug, companies are unable to take advantage of tax deductions that are standard in other industries due to Internal Revenue Code Section 280E. This prohibits businesses selling Schedule I substances from claiming deductions, forcing them to pay taxes on gross profits rather than net income.
“One of the most positive impacts of rescheduling marijuana at the federal level will likely be opening up existing tax breaks,” noted Ross Sloan, a cannabis banking officer at Dart Bank. This could allow cannabis business owners to finally deduct operating expenses, salaries, and marketing costs, vastly improving their financial situation.
Another significant advantage of the reclassification is the potential for improved access to banking, loans, and investment opportunities for the cannabis industry. Traditionally, banks have been hesitant to work with cannabis businesses due to its federal illegality, leading to increased banking fees and a preference for cash transactions. This situation has resulted in heightened risks associated with theft and money laundering.
Michigan’s Cannabis Regulatory Agency is urging the federal government to provide “clear guidance” and thoughtful implementation of the new policies to address long-standing barriers in banking, research, social equity, and taxation. Without such guidance, the tax system could remain convoluted, continuing to pose challenges for cannabis businesses.
Additionally, the reclassification could allow Michigan cannabis businesses to seek bankruptcy protection, enabling them to restructure debts, protect assets, and continue operations under court supervision. This is particularly important given the current challenges facing the state’s cannabis market, which has seen slowing sales and dropping prices amidst increased competition and oversupply since the legalization of recreational sales in 2019.
Moreover, a new 24% wholesale tax on adult-use marijuana transactions is set to take effect on January 1, further complicating the financial landscape for cannabis businesses. However, the rescheduling of marijuana could spark renewed interest in its medical benefits, attracting larger corporations to enter the market and develop new products, as predicted by industry experts.
President Trump’s executive order to reclassify cannabis from Schedule I to Schedule III holds the potential to revolutionize the cannabis industry in Michigan and beyond. By easing financial burdens, improving access to banking, and expanding research opportunities, this move may finally recognize the medical value of marijuana and set the stage for a more equitable and sustainable cannabis market. As the federal government moves forward, the industry awaits further guidance to fully capitalize on these changes.