The Justice Department is seeking public comments on the “unique economic impacts” of its proposal to reschedule marijuana, acknowledging that state-level legalization has fostered a “multibillion dollar industry” that stands to benefit from potential federal tax relief under the reform.
Notice of Proposed Rulemaking
In its notice of proposed rulemaking set to be published in the Federal Register on Tuesday, DOJ highlighted that “marijuana is subject to a number of State laws that have allowed a multibillion dollar industry to develop.” The department recognizes that rescheduling cannabis to Schedule III, rather than Schedule I, of the Controlled Substances Act (CSA) could significantly impact federal taxes and research and development investment for the pharmaceutical industry, among other factors.
Public Comment Period
The move to place cannabis in Schedule III has generated considerable public interest. A 60-day public comment period will formally open this week, expected to draw a diverse range of feedback from advocates, stakeholders, opponents, and others. In its draft notice posted on Thursday, DOJ stated it is “specifically soliciting comments on the economic impact of this proposed rule” and will consider any feedback received when finalizing the rule.
Economic Impact on Small Entities
The DOJ has concluded that the rescheduling action may have a significant economic impact on numerous small entities. A notable change would be the removal of the current ban preventing state-licensed cannabis businesses from taking federal tax deductions under IRS code 280E. If marijuana is moved to Schedule III, section 280E would no longer bar claiming deductions for related expenses. Additionally, small entities engaged in marijuana research may face different protocols set by the DEA for Schedule III substances compared to Schedule I substances. The DOJ seeks further comments and information to inform its analysis of these impacts.
Presidential and Legislative Context
President Joe Biden announced the administration’s rescheduling action on Thursday, aligning with his stance that no one should be jailed for cannabis possession. While rescheduling does not legalize marijuana federally, it signals the first federal recognition in over 50 years of the medical value and lower abuse potential of marijuana. However, rescheduling does not address criminal records or ongoing legal issues related to cannabis.
Advocates and Opponents
Many advocates have welcomed the rescheduling as a step forward, but emphasize that it does not fully legalize marijuana or provide relief to those criminalized over it. Prohibitionists continue to push for keeping marijuana in Schedule I and may litigate against the proposed changes. DEA Administrator Anne Milgram has acknowledged the possibility of an administrative hearing to gain further input on the decision before finalization.
Congressional Involvement
The Congressional Research Service (CRS) has noted that while it is likely the DEA will enact the policy change, this will not align state markets with federal law. Congress retains the authority to address the federal-state cannabis policy gap before or after the reform is enacted. Senate Majority Leader Chuck Schumer (D-NY) and colleagues have reintroduced legislation to federally legalize cannabis and impose regulations, though its prospects remain uncertain in the current divided Congress.
Moving Forward
The Biden administration’s move to reschedule marijuana is seen by some as a positive step, yet there is a call for further congressional action to address comprehensive legalization. Former DEA Administrator Asa Hutchinson has indicated that the agency will likely follow through with the rescheduling. Biden has also issued mass pardons for federal marijuana possession offenses, but a Schedule III reclassification would not free those still incarcerated over cannabis.
While Biden initially pledged to move cannabis to Schedule II during his presidential campaign, the current proposal for Schedule III is viewed as a significant yet incremental step towards broader reform.
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