Is the Biden administration close to a decision on whether to change federal laws around marijuana, with potential major ramifications for the drug’s use and the cannabis industry’s ability to access, among other things, financing?

Some believe that decision, which could, at a minimum, involve putting cannabis in the same category as prescription drugs, could take place as soon as the end of this year or sometime early in 2024.

In October 2022, President Joe Biden issued a statement on marijuana enforcement, pardoned individuals convicted at the federal level of simple possession and asked governors to do the same for state offenses. 

Third on Biden’s list was a request to the U.S. Attorney General and the U.S. Secretary of Health and Human Services to review how marijuana is scheduled under federal law.

That followed an October 2021 request from U.S. Sens. Cory Booker, a Democrat from New Jersey, and Elizabeth Warren, a Democrat from Massachusetts, who urged Attorney General Merrick Garland to remove cannabis from the Drug Enforcement Administration’s list of controlled substances.

The last time the executive branch looked at the issue was under President Obama in July 2016, but Biden’s letter last year noted an international treaty at the time that resulted in a denial of the drug’s de-scheduling by the Drug Enforcement Administration.

However, the United Nations’ Commission on Narcotic Drugs decided in December 2020 – on a close 27 to 25 vote – to “reduce restrictions on cannabis” tied to the treaty, and some of the signatories, including Canada and Uruguay, have since legalized cannabis completely. More than 50 member states of the United Nations have also adopted medicinal cannabis programs. 

Currently, marijuana is listed in the U.S. under Schedule 1 of the Controlled Substances Act, the classification meant for the most dangerous substances. That’s the same classification that includes heroin, ecstasy, peyote and LSD.

The Controlled Substance Act of 1970 was part of the Nixon administration’s “war on drugs” that also included the establishment of the Drug Enforcement Administration.

The law stipulates five schedules, with Schedule 1 reserved for drugs with the highest potential for abuse and no accepted medical use.

Scant research

However, after more than 50 years of prohibition, attitudes around medical uses for cannabis have changed. The Food and Drug Administration, for example, approved synthetic THC-based medications for treating nausea in cancer patients and for those with AIDS, as well as two CBD-based liquid medications for treating rare forms of epilepsy in children. Despite those approvals, both the DEA and FDA firmly adhere to the Schedule 1 classification.

Until recently, scientific research around the effects of cannabis has been scarce due to its classification as a Schedule 1 drug. Only in the last two years has the Drug Enforcement Administration started to loosen its restrictions on who can produce cannabis for scientific research and medical purposes. At the moment, only one university is allowed by the DEA to supply cannabis for research purposes.

The National Academies of Science pointed out that despite growing acceptance of marijuana in many states, “evidence regarding the short- and long-term health effects of cannabis use remains elusive.”

“Unlike other controlled substances, such as alcohol or tobacco, no accepted standards for safe use or appropriate dose are available to help guide individuals as they make choices regarding the issues of if, when, where, and how to use cannabis safely and, in regard to therapeutic uses, effectively,” the group said. 

A 2020 letter from the director of the National Institute on Drug Abuse, said “marijuana impairs short-term memory and judgment and distorts perception” and, as a result, “can impair performance in school or at work and make it dangerous to drive.”

“It also affects brain systems that are still maturing through young adulthood, so regular use by teens may have negative and long-lasting effects on their cognitive development, putting them at a competitive disadvantage and possibly interfering with their well-being in other ways,” the letter said, adding, “Also, contrary to popular belief, marijuana can be addictive, and its use during adolescence may make other forms of problem use or addiction more likely.”

Researchers at the Colorado School of Public Health at the University of Colorado Anschutz Medical Campus recently pointed to studies showing that very potent marijuana is associated with psychosis, but that it also offers some benefits, such as reducing anxiety and depression.   

The researchers, who noted that the health implications of the trend toward high potency marijuana are “not well understood,” screened about 66,000 studies and identified 452 that are relevant. Indeed, they cautioned that the evidence does not provide an accurate picture of how risk for adverse outcomes varies with concentration or other indicators of THC dose.

One study cited by researchers concluded that any cannabis use or daily consumption – or any initiation prior to age 15 – and “high potency” use are “all associated with earlier age of first onset of psychosis.”

The researchers also saw a “moderate amount of evidence” that high potency marijuana offers beneficial outcomes in particular cases, specifically in obsessive-compulsive disorder, where one study found reductions in compulsions, intrusions, and anxiety; palliative care symptoms, in which patients self-reported improvement in neuropathic pain, insomnia, and depressive symptoms; and, in attention deficit hyperactivity disorder, where a self-reported questionnaire study found an association between higher-dose consumption of medical cannabis and reduction in ADHD medication.

Biden has echoed the concerns over the gaps in research, calling marijuana’s current classification a “significant barrier to further medical research because researchers are severely limited in their ability to access the substance.”

The president, along with Congress, has already taken steps to promote medical research on cannabis.

Last December, he signed into law the Medical Marijuana and Cannabidiol Research Expansion Act, a bill co-sponsored by then-U.S. Rep. Ed Perlmutter, D-Arvada, which would establish a new registration process for conducting research on marijuana and for manufacturing marijuana products for research purposes and drug development.

In a tweet last October, Biden said that having cannabis classified at Schedule 1 made no sense. But he gave little indication of just where he thought it should be.

Even some who are opposed to legalization back the idea of more medical research.

More research needed

Luke Niforatos, the executive vice president for Smart Approaches to Marijuana, told Colorado Politics he expects to see a lot more medical research on marijuana-based medications, and “that’s a good thing.”

That said, the group wants marijuana to stay right where it is – at Schedule 1.

“We don’t expect it to change, and from a scientific perspective, (it) makes no sense to change,” he said.

“What we’ve learned from the science … it’s not something that has medical value,” he said, noting the FDA has approved formulations with THC, and “we expect to continue to see medicine work through the FDA process,” especially with the medical marijuana act that the group supported last year. 

“It’s not that we can’t have marijuana as medicine right now. There’s an industry pushing for it to be rescheduled” despite it never qualifying as medication, as most people understand what medicine is for the past century, he said.

Rep. Judy Amabile, D-Boulder, who has long advocated for more limitations on marijuana potency, said, “Anything we do should be thoughtful.”

She said the primary consideration should be to protect kids.

“I don’t want people to go to jail,” she told Colorado Politics, and said she is opposed to criminalizing the drug as a way of dealing with addiction.

“It’s hard to put the genie back in the bottle. The problem for me is that we’ve commercialized it, and that commercialization has led to perverting the product,” creating edibles that are high in potency, for example, she said.  “I would welcome the FDA getting involved in regulating, and that we could do research with federal dollars on these products.” 

Amabile said today people can claim whatever they want about what the drug does – but, with FDA involvement, those claims could be evaluated.

A recommendation by year’s end

Many experts believe Biden will want to make a decision about de-scheduling or rescheduling cannabis before he completes his first term of office. That’s based in part on comments by health department secretary Xavier Becerra, who said in June he hopes to have a recommendation ready by year’s end. 

The process of reevaluating cannabis for potential de-scheduling (or even moving to a lower schedule) works like this: the Department of Health and Human Services would evaluate cannabis, based on eight criteria that includes its public health risks, several criteria around abuse and scientific evidence of its pharmacological effect.

If the health secretary recommends de-scheduling, the attorney general would have to agree, according to this analysis. 

However, if the health secretary recommends rescheduling or keeping it as Schedule 1 drug, the attorney general is not bound to that decision.

Two weeks ago, Anne Milgram, head of the Drug Enforcement Administration, spoke at a U.S. House hearing about rescheduling, telling lawmakers her agency must first conduct its own evaluation process before making a scheduling decision.

But whether that means moving cannabis to a lower schedule, or taking it off the schedule entirely, as cannabis advocates are clambering for, is the biggest question of all.

The differences are huge.

A ‘double edged’ sword

Peter Marcus, communications director for Terrapin Care Station, calls the notion of rescheduling marijuana from Schedule 1 to Schedule 3 a “double-edged sword.”

“Everything we’re hearing” indicates the Biden administration will reschedule rather than deschedule, Marcus told Colorado Politics. His guess is the administration could drag it out into the election season.

While it wouldn’t be the worst thing to change it to Schedule 3, that’s not what needs to happen, Marcus said.

The biggest advantage in changing the classification is what happens to the taxes the marijuana industry pays.

Businesses are allowed to deduct the cost of doing business for taxing purposes, which can include everything from computers to mortgages, utilities, wages and other supplies.

Those deductions, however, aren’t allowed for the cannabis industry under something known as Internal Revenue Service regulation 280E. That regulation came into play in the 1970s, when drug dealers were setting up limited liability companies and then deducting their business costs, including drugs, from their taxes.

In response, the IRS came up with regulation 280E, which says no deduction or credit shall be allowed for any trade or business if that business traffics in controlled substances under either Schedule I or II of the Controlled Substances Act.

Were cannabis to be rescheduled to Schedule III, or de-scheduled, cannabis businesses could start deducting business expenses.

Truman Bradley of the Marijuana Industry Group said 280E is “truly crushing the industry.”

“The only organization actually making money off of cannabis right now is the federal government in the form of unfair taxes,” he said.

No other industry in the country faces a tax burden this severe, Bradley said.

But getting rid of the 280E regulation would could lead to a flood of cash into the cannabis market, Marcus said, adding that would benefit large businesses but not so good for mom-and-pop stores.

Marcus said investors hold extra cash and could squeeze out those smaller businesses through consolidation and changes in pricing.

That’s the double-edged sword, Marcus said.

Niforatos said the pharmaceutical industry is already in, pointing to the purchase last December by Teva Israel, a branch of Teva Pharmaceuticals, of a medical cannabis company. 

Closer to home, last week, Tilray Wellness, the world’s largest cannabis company, announced one of its divisions had signed a distribution agreement with Southern Glazer’s Wine & Spirits, which owns the Breckenridge Brewery brand, along with Bud Light.

This could lead to expansion into the United States of the company’s CBD-infused beverages. In the wake of that news, Forbes reported the company’s strategy is to bring in products “that could quickly support cannabis extensions if the United States de-criminalizes the drug.”

A boon for marijuana banking 

Rescheduling would notably help with banking woes, long a problem for the industry. Marcus said it isn’t that cannabis businesses can’t bank – they can, but they get hit with exorbitant fees from the banking industry. 

A rescheduling or de-scheduling of the drug would mean fees would come down, and credit card companies would relax their restrictions.

The changes to the industry wouldn’t happen overnight, Marcus said. There would likely be years of rulemaking first from the Food and Drug Administration, which would approve products, as well as from the DEA.

The FDA has brought up another issue: the potential for big pharmaceuticals coming into the industry, Marcus said. 

“They’ve been sitting on the sidelines this whole time when it comes to the production of cannabis products,” Marcus said.

Once marijuana is rescheduled (or de-scheduled), the pharmaceutical industry will make their own push for their own products with the Food and Drug Administration, Marcus said.

The entry of pharmaceutical industry into the cannabis industry is part the downside of rescheduling, Marcus claimed. 

“Would people purchase their cannabis in a pharmacy?” he asked.

Marcus believes the Biden administration won’t go all the way to descheduling the drug.

“The president doesn’t want to see marijuana legalized,” he said. “It’s personal” because of his son. (Hunter Biden has a well-documented history of alcohol and drug abuse, writing about it in a 2021 memoir.) 

Ultimately the most appropriate place for cannabis is not on a list of controlled substances, Bradley of the Marijuana Industry Group said.

“We’ve been in the drug war a long time,” said Wanda James, who with her husband owns Simply Pure, the first African-American licensees for a cannabis dispensary. James is also a regent for Congressional District 1 for the University of Colorado.

James said she has seen first hand the effects of the war on drugs, with a brother who was sent to a Texas prison at age 17 for possessing four ounces of marijuana. He’s now working alongside her at Simply Pure. 

She said she’s happy for incremental change, although she worries about the potential for unintended consequences.

James said she would want greater access to banking beyond procuring credit cards or paying lower banking fees.

No business can survive under Schedule I, James said, pointing out that she paid more than $40,000 in banking fees annually.

It’s not really banking, James said, adding her business is allowed to have a depository, which means the bank picks up the money, puts it into a vault and the company can write checks against it.

And that’s it, James said. 

What cannabis companies don’t have, in addition to access to credit cards, is access to lines or credit.

For example, Denver recently required dispensaries to lock up their products in a vault at night. That remodeling cost is about $75,000 per store for a store of less than 1,000 square feet.

“Where do I get that money?” James asked.

She could go to someone who could finance outside of a bank, but that investor would want 30% of her business.

“I can’t get a loan, I can’t get a line of credit to help with these unfunded mandates,” James said.