US Agency Recommends Reclassifying Marijuana as Less Dangerous Drug

Josh Wingrove, Tiffany Kary and Riley Griffin
·5 min read
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(Bloomberg) -- The US Justice Department has recommended that cannabis be reclassified as less risky, a decision that could help the growing legal marijuana industry benefit from tax breaks.

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Attorney General Merrick Garland on Tuesday “circulated a proposal to reclassify marijuana from Schedule I to Schedule III,” according to a brief department statement. “Once published by the Federal Register, it will initiate a formal rulemaking process as prescribed by Congress in the Controlled Substances Act.”

Several steps remain before marijuana can be taken off Schedule I, where it’s listed with dangerous narcotics like heroin, and put on Schedule III, which is for less risky drugs with a medical use. This would ease access to cannabis for patients and researchers studying its medical applications without decriminalizing it. The production, distribution and possession of marijuana for recreational purposes, however, would remain illegal under federal law.

The effort, which could still collapse, arrives almost 30 years after California legalized medical marijuana. More than half the US population is now able to buy pot under a state-by-state patchwork of voter-driven laws.

“This is historic because the federal government is finally acknowledging that it has misclassified one of the most popular drugs for many years,” said David Pozen, a professor at Columbia University Law School and the author of a recent book on drug policy, in a phone interview.

Shares of cannabis-related companies surged Tuesday, with Curaleaf Holdings Inc. rising 25% in US trading and Green Thumb Industries Inc. jumping 22%. Meanwhile, the MJ PurePlay 100 Index, which tracks 95 global stocks exposed to the cannabis industry, climbed 22%, its biggest one-day gain since October 2022.

Senate Majority Leader Chuck Schumer, along with fellow Democrats Cory Booker of New Jersey and Ron Wyden of Oregon, said in a statement on Tuesday night that they’d reintroduce legislation “that would end the federal cannabis prohibition by removing cannabis from the Controlled Substances Act.”

Read More: Pot Stocks Surge on Report DEA Is Moving to Reclassify Marijuana

A majority of Americans believe marijuana should be decriminalized for recreational or medical use, a policy that President Joe Biden said he would pursue while in office but that still lacks widespread support in Congress. Biden’s favorability has waned among key voting blocs that favor legalization, including young voters and Black Americans.

More than a year ago, Biden pardoned federal and Washington marijuana offenses in an effort to resolve the irony that companies are now selling a product that people are still imprisoned for possessing — and with Black Americans representing a disproportionate percentage of those arrested. Pardons have been ongoing.

The process could be upended if Biden loses this year’s election to Former President Donald Trump, whose campaign didn’t immediately respond to a request for comment. Republicans have generally opposed rescheduling or decriminalizing marijuana.

“We need to be reducing the number of people that use drugs and not increasing that number,” Republican House Majority Leader Steve Scalise said in an interview. “We shouldn’t be making matters worse.”

Read More: How Legal Weed Has Changed the US

At the same time, Congress has been weighing potential changes to open the door for lenders to more easily offer banking services to marijuana companies. While Democrats have considered adding it to a Federal Aviation Administration reauthorization bill, Republican Senate Minority Leader Mitch McConnell remains opposed to it, according to a spokesman. Several other senior Senate Republicans cast doubt Tuesday on it being included, including Steve Daines of Montana, one of the bill’s sponsors.

Continuing Debates

The DEA’s move is unlikely to resolve debates over a drug that’s popular with young consumers. Cannabis companies, some of which are backed by alcohol and tobacco makers, have said joints, gummies and drinks with psychoactive THC should be able to be sold just like alcohol or cigarettes. This would mean “descheduling” the drug altogether.

The perception of cannabis by the public also remains a key issue. Weed is now viewed as healthier than booze by the “California sober” demographic, which has given up alcohol and other drugs but continues to use marijuana. It’s the most commonly used federally illegal drug in the US, according to the Centers for Disease Control and Prevention, and state-level legalizations have raised much-needed cash, bringing in around $3 billion in tax revenue, according to the non-profit Tax Foundation.

Yet spotty record-keeping has made it hard to judge the overall impact of more widespread use that’s come with legalization.

‘Robust Optimism’

Cannabis companies lauded the news, though US authorities have yet to officially weigh in on the matter.

Ben Kovler, the chief executive officer of Green Thumb, said the decision was long past due. “The official acknowledgment that cannabis has medical utility from a government agency further validates our mission and belief that cannabis has the power to improve well-being,” said Kovler, whose company operates in multiple US states.

Morgan Paxhia, co-founder of Poseidon Investment Management, which invests in cannabis said that rescheduling “is likely to bring a vibrant return of investor interest that could quickly move the sector back to robust optimism.” Cannabis stocks have languished in recent years amid federal inaction.

“Moving to Schedule III represents a tectonic shift in our nation’s drug laws,” said the US Cannabis Council, a trade group for the industry, adding that the change would end the tax penalty called 280E that bars companies that deal in federally illegal substances from taking tax deductions. The new legal status should help cannabis businesses of all sizes, the group said, and make the regulated market better able to compete with the illegal market.

$35 Billion Market

Rescheduling, if ultimately enacted, would represent a boon to the legal cannabis industry that is estimated to have generated around $35 billion in sales last year, according to New Frontier Data, a market research firm.

If marijuana is reclassified as Schedule III it will be treated like substances such as ketamine and anabolic steroids, which require prescriptions but aren’t federally prohibited.

A spokeswoman for the DEA declined to comment. The White House also declined to comment.

The Associated Press was the first to report on the shift in policy.

--With assistance from Akayla Gardner, Erik Wasson, Steven T. Dennis and Chris Strohm.

(Updates with senators’ reintroducing bill, in seventh paragraph.)

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