The U.S. Department of Health and Human Services is recommending the Drug Enforcement Administration reschedule cannabis – previously listed as a dangerous drug posing the same risks as LSD, peyote and heroin – to a much lower classification, according to news reports on Tuesday.

The change could mean major financial benefits to the industry.

Industry leaders, however, still believe that declassifying cannabis altogether, as opposed to reclassifying it, is the better option.

The news sent stocks soaring for cannabis companies, such as Canopy Growth, Cronos Groups and Tilray Brands, the world’s largest cannabis company, which also owns Breckenridge Brewery.

Bloomberg News reported earlier Wednesday that a top official at the Department of Health and Human Services wrote DEA Administrator Anne Milgram, “calling for marijuana to be reclassified as a Schedule III drug under the Controlled Substances Act.”

The letter, dated Aug. 29, was seen by a Bloomberg reporter.

Bloomberg also reported the DEA will now begin its own review. The final authority on whether to reschedule – or deschedule – marijuana rests with the Justice Department. 

The biggest surprise in the announcement is its timing.

That recommendation wasn’t expected for a few more months, based on comments by Health Secretary Xavier Becerra, who said in June he hoped to have a recommendation ready by year-end. 

Many experts believe President Joe Biden wants to make a decision about descheduling or rescheduling cannabis before he completes his first term of office. 

The process of reevaluating cannabis for potential rescheduling or descheduling began with HHS’ evaluation, based on eight factors that included its public health risks, several criteria around abuse and scientific evidence of its pharmacological effect.

Research on the effects of marijuana is scant, with some pointing to negative effects and others citing benefits for cannabis use.

Reaction in Colorado to the health agency’s recommendation was immediate.

Chuck Smith, president of the board of Colorado Leads, an alliance of cannabis business leaders, called rescheduling progress.

“The HHS rescheduling recommendation marks a historic step toward federal cannabis policy reform,” Smith said on Tuesday. “For over a decade, Colorado has been demonstrating states’ ability to effectively regulate cannabis for medical and broader adult use, and it’s time for federal law to reflect that reality. State-legal cannabis businesses that create jobs, pay taxes, and provide adults and medical patients with safe and legal access to cannabis deserve to be treated fairly, and this would be a big step in that direction.”

Smith said that, while descheduling would more comprehensively roll back federal prohibitions, rescheduling means meaningful progress with significant benefits.

Topping that list of benefits are taxes.

Currently, 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 descheduled, cannabis businesses could start deducting business expenses.

Truman Bradley, executive director of the Colorado-based Marijuana Industry Group, told Colorado Politics earlier this month 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.

In a statement on Tuesday, Bradley said his group is pleased with the recommendation.

“Schedule I drugs are reserved for products that have ‘no medical benefit,’ which is, of course, inconsistent with the many known medical benefits of cannabis that we have discovered both through research and through the countless stories of Colorado veterans and patients.”

Bradley also said his group hopes the DEA would go a step further and deschedule cannabis entirely, noting that “cannabis is clearly safer than other unscheduled substances like alcohol.”

Bradley said while his group is excited about the potential relief for small business owners under Schedule III, concerns remain.

“First and foremost, if the DEA accepts this recommendation of which there is no guarantee although they historically have, cannabis is still illegal federally. This means consumers and patients can still be criminally punished,” he said. 

Next, rescheduling could open the door for Big Pharma and other major corporations to take over the industry, Bradley said.

The U.S. attorney general now has 90 days from receiving this recommendation to issue a ruling.

“And we will certainly encourage Colorado cannabis small-business owners, veterans, patients, and consumers to weigh in on this important issue,” Bradley said. “While overall this is a positive step in the right direction, there is more that needs to be done both at the state and federal level to streamline regulations and protect both small businesses and public safety.”

The group pointed out cannabis sales were down nearly $100 million in 2022, compared with 2021, and 2023 sales are on track to be down even further than 2022. Colorado lost 10,481 cannabis jobs last year, according to the Vangst 2023 Jobs Report. 

Smith, of Colorado Leads, pointed to other benefits of rescheduling, such as banking and financial services that could be be available to cannabis companies. Colorado members of Congress have been trying for years to pass legislation that would give cannabis companies more access into the banking and financial services arena. That would facilitate lower fees for credit cards, access to regular banking services and, most of all, access to capital, they said.  

Barriers to research would also be lifted under rescheduling, Smith said. 

Biden earlier 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.”

Another issue around rescheduling is in the area of criminal justice, Smith explained. 

“When it comes to addressing the wide range of criminal justice implications associated with prohibition, Schedule III does not go nearly far enough,” he said. “But it would help pave the way for those important reforms and reduce the scope of criminal liability that Americans currently face when operating or working for state-legal cannabis companies.”

Until recently, scientific research around the effects of cannabis has been scarce due to its classification as a Schedule 1 drug. 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” and that “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.”

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.”

The group also warned against use of marijuana by children, saying it “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 group added that, 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. 

Luke Niforatos, executive vice president for Smart Approaches to Marijuana, earlier called more research into marijuana-based medications a “good thing.” But the group wants marijuana to stay right where it is, at Schedule 1.

“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 noted 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.