On Aug. 30, 2023, Secretary of U.S. Department of Health and Human Services, Xavier Becerra authored a letter to the Drug Enforcement Administration recommending that marijuana be reclassified from a Schedule I to Schedule III drug under the Controlled Substances Act. HHS based this recommendation on the Food and Drug Administration’s review of marijuana’s classification, as requested by President Biden in October 2022. The recommendation is rooted in scientific and medical data and is under consideration by the DEA, which has the ultimate authority to schedule or reschedule a drug under the Controlled Substances Act. As it stands right now, marijuana is classified as a Schedule I drug under the CSA, meaning it has a high potential for abuse and no accepted medical use, on par with drugs like heroin, bath salts, and LSD.[1] On the other hand, Schedule III drugs are defined as drugs with a moderate-to-low potential for physical and psychological dependence, and include ketamine, testosterone, and metabolic steroids.
What a reclassification would mean
Despite being federally illegal, legal cannabis has proliferated at the state level. Thirty-eight states, and Washington, D.C., have implemented medicinal marijuana programs, and 23 states and Washington, D.C., have legalized adult recreational-use cannabis policies.
While the reclassification of marijuana is a huge first step for the United States, reclassification is not legalization. Cultivation, production, and sales still would be prohibited under federal law. Reclassifying marijuana from a Schedule I to Schedule III substance would pave the way for interstate commerce, meaning states where cannabis is legal would have opportunities to comingle and expand their profitability into other domestic cannabis markets. It also would offer more favorable economic opportunity for businesses operating in the cannabis industry.
Currently, under Internal Revenue Code (IRC) Section 280E, marijuana businesses are prohibited from taking traditional business deductions and credits because marijuana is classified as a Schedule I drug under the Federal Controlled Substances Act. This makes it difficult for these businesses to stay profitable because they cannot deduct ordinary business expenses like salaries, advertising, and insurance expenses.
As the Drug Enforcement Administration considers the U.S. Department of Health and Human Services’ recommendation, this moment is pivotal in our country’s journey toward comprehensive cannabis reform. From the cultivator and dispensary associate, to the medicinal patient and recreational consumer, the rescheduling of marijuana holds the promise of a critical step toward aligning federal policies with the realities of legal weed in multiple states and fostering an environment in which both the medicinal and recreational benefits can be harnessed, shaping a more inclusive and equitable landscape in the country’s cannabis market.
What does this mean for insurance agents
The recommendation to reclassify cannabis as a Schedule III drug is significant, but insurance agents may not feel its impact immediately. While reclassification does allow cannabis businesses the opportunity to access certain tax benefits, as well as allows researchers better access to the drug—even as a Schedule III drug—cannabis still would remain federally prohibited.
This federal prohibition is at the root of the issue with legalized cannabis. Insurance producers and carriers must be worried about violating federal law if they provide insurance services to cannabis businesses.
While reclassification is unlikely to provide immediate benefits to insurance producers, it does signal that the cannabis tide continues to turn against the overly restrictive cannabis laws of the past. It won’t happen tomorrow, but decriminalization of cannabis on the federal level is one step closer to becoming a reality.
[1] https://www.dea.gov/drug-information/drug-scheduling#:~:text=Schedule%20I%20drugs%2C%20substances%2C%20or,)%2C%20methaqualone%2C%20and%20peyote
Theophilus Alexander
Theophilus W. Alexander joined PIA Northeast as a government & industry affairs specialist for the Government & Industry Affairs Department in 2023. Prior to joining PIA, Theo had served in both houses of the New York State Legislature. Previously, he worked as a legislative analyst for Hon. New York State Sen. Samra G. Brouk, D-55, and he served at the New York State Assembly, as a policy analyst with New York Assembly Program & Counsel. Theo received his Bachelor of Arts degree in Politics from Ithaca College in Ithaca, N.Y.
