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What would marijuana reclassification mean for businesses?

On Behalf of | May 27, 2024 | banking on pot

The U.S. appears to be closer than it’s ever been to finally reclassifying marijuana as a Schedule III drug rather than Schedule I. Advocates for reclassification have long argued that it doesn’t belong in Schedule I with the most dangerous drugs that have no medical value like heroin, LSD and ecstasy.

The U.S. Drug Enforcement Administration (DEA) has announced its intention to reclassify the drug. Despite President Joe Biden’s support, however, it will need to go through a long bureaucratic process before this happens.

Marijuana legalization advocates caution that if the proposal succeeds, it won’t change the legality (or illegality) of the drug for those who use it – either on the individual state or federal level. It would still be illegal under federal law unless and until federal changes.

Changes to the tax status of cannabis companies

Cannabis companies, however, could see some important benefits from the reclassification. The CEO of one of the leading companies called this a “historic moment” for the cannabis industry. He said it signals “that the federal government acknowledges that there is a medicinal benefit to cannabis, and that, ultimately, this belongs regulated similar to other industries.”

One significant change will likely be a much-needed tax break. Cannabis companies would likely no longer fall under IRS Section 280E. This section of the tax code raises their tax rates and limits their deductions. 

Freeing them of these financial burdens would allow business owners to put more money back into building their businesses, which should help attract more investors. Further, it will be easier for researchers to use it, which will give these companies additional customers.

What about banking restrictions?

It’s also possible, but less certain, that reclassification could help cannabis business owners use the banking system. The SAFER banking bill, which would also do this, hasn’t made it through Congress. The ability to open bank accounts, get loans and more would help small cannabis business owners get their companies off the ground. Further, their customers wouldn’t be confined to using cash. This in turn can help small businesses avoid being targets for robberies.

This will be a crucial process to watch this year to see how it plays out. If the proposal is successful, it will no doubt change and open up the industry for businesses of all sizes. This is an important time to ensure that your business has sound legal guidance.