Anticipating Pivotal Changes: The U.S. Cannabis Industry’s Path in 2024

NEW YORK– The U.S. cannabis industry stands at a pivotal juncture as it anticipates the Drug Enforcement Administration’s (DEA) next step in the long-awaited rescheduling process. This move, set to unfold in 2024, could mark the most significant shift in U.S. cannabis policy in half a century.

In a process initiated by the Biden administration in October 2022, cannabis is expected to be reclassified to Schedule 3 of the Controlled Substances Act (CSA). This reclassification would signal an official acknowledgment of cannabis’s medical value, a stark departure from its current Schedule 1 status which denotes no accepted medical use and a high potential for abuse.

The implications of this shift are far-reaching. For the cannabis industry, rescheduling could alleviate the tax burden under Section 280E of the federal tax code, which currently prevents state-legal cannabis businesses from deducting common business expenses. This change could provide much-needed financial relief to retailers who have been disproportionately affected by this tax provision.

The potential rescheduling might also influence President Joe Biden’s re-election campaign. However, questions remain about how swiftly these changes can aid cannabis businesses struggling with state-level challenges, including declining wholesale prices and competition from an illicit market.

Meanwhile, the industry is closely monitoring other developments. The next state to legalize adult-use cannabis faces either judicial hurdles or legislative deadlock. On the federal front, the passage of the SAFER (Secure and Fair Enforcement Regulation) Banking Act, crucial for financial accessibility in the cannabis sector, faces uncertainty amidst political gridlock.

The cannabis industry, currently valued at $34 billion, is poised for a transformative year. Key predictions for 2024 include:

1. DEA’s Proposal for Rescheduling Cannabis: Following a recommendation from the Department of Health and Human Services, the DEA is likely to propose moving cannabis from Schedule 1 to Schedule 3 of the CSA.
2. Tax Relief on the Horizon: The reclassification of cannabis would nullify the application of Section 280E, leading to significant tax savings for cannabis businesses. Companies like Florida-based Trulieve Cannabis are already seeking federal tax refunds, setting a precedent for others in the industry.
3. Limited Federal Progress Expected: Despite momentum in 2023, federal cannabis banking reform faces an uncertain future in Congress, with little optimism for passage in the current session.
4. New States Legalizing Cannabis: Florida and Pennsylvania are the leading candidates for legalizing recreational cannabis. Both face unique challenges, with Florida requiring a high voter threshold and Pennsylvania grappling with partisan divides.
5. Cannabis Reform as a Presidential Campaign Issue: With cannabis legalization measures potentially impacting key states, the issue could become a focal point in the 2024 presidential campaign.
6. States Targeting Illicit Markets: New York and California, among other states, are strategizing to curb the thriving illicit cannabis market, a crucial step for the success of the legal market.
7. Social Equity in Focus: States are reevaluating their approach to ensuring fair participation in the cannabis industry, especially for communities disproportionately impacted by previous drug policies.

As the industry navigates these developments, the broader implications for business, regulation, and social equity will undoubtedly shape the landscape of cannabis in the United States.