In the past 24 hours, I’ve received many, many phone calls from clients worried about an article they read online claiming the DEA is about to reclassify cannabis from Schedule I to Schedule II.
The article’s manifesto is derived from a “DEA lawyer,” unnamed obviously to avoid being fired, but also possibly because the story is contrived.
However, let’s work under the premise that this is what is going to happen — that the DEA is going to make cannabis a Schedule II drug in short order.
Some clients are worried. Should I close up my cannabis shop, they wonder, now that Big Pharma will be moving in (because they’re the only ones with enough money and clout to do clinical trials to create patentable, sellable medicine)?
Changes Won’t Happen Overnight
First, don’t panic. Look at the reality. Assuming the DEA were to reclassify cannabis on or near August 1, it would take several years before regulations, programs, licensing, etc., would be ready for the public. During the interim there will be chaos as states won’t know whether their rules and regulations have been usurped because, theoretically, “cannabis will be legal in all 50 states, but only with a prescription.”
Fortunately, government doesn’t work that way. Medical and adult-legal states are not about to kiss away the tax revenue derived from cannabis. They are also going to have serious issues with abandoning or losing the investment they’ve made in their cannabis regulatory infrastructure. I wouldn’t be surprised to see state attorneys general suing the DEA, or lobbying Congress and demanding the complete de-scheduling of cannabis so states can regulate it as they see fit.
What About Taxes?
Would rescheduling affect the tax status of cannabis companies? Probably not. If marijuana is reset to Schedule II, then IRS Rule 280E still applies, and the tax issues remain the same.
Will Growing and Selling Cannabis be Impacted?
What about cultivating and selling cannabis — both medical and recreational? Initially there will be a lot of confusion and very few good explanations. My recommendations: Keep working, maintain your business, and start working with a lawyer to help you stay within the promulgated regulations, or to help you change your business so you can compete with Big Pharma.
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I’m advising my clients to read this information sheet on the FDA’s Emergency Use IND. The Emergency Use IND (Investigational New Drug) program allows the FDA to authorize use of an experimental drug in an emergency situation that does not allow time for submission of an IND in accordance with 21CFR, Sec. 312.23 or Sec. 312.20. IND rules are also used for patients who do not meet the criteria of an existing study protocol, or if an approved study protocol does not exist. Guess what? There are very few clinical trials going on with cannabis right now, so the field will be wide open.
For now, don’t panic, keep working, and let’s see when and how the DEA changes the way cannabis is scheduled.
Bob Carp is a leading tax attorney and author who specializes in cannabis industry tax issues. His firm, Cottens and Carp, is based in Boston.
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