The DEA could reclassify cannabis as a lesser illicit substance, which could open up tax benefits for cannabis businesses. (Al Seib/Los Angeles Times/TNS)
The Associated Press reported Tuesday that the Drug Enforcement Administration will propose reclassifying marijuana to a lower, less severe rung of illicit substances, providing relative taxation benefits for dispensaries.
If the DEA moves marijuana from Schedule I – alongside heroin and LSD – to Schedule III, which includes anabolic steroids, ketamine and Tylenol with codeine, businesses could save millions in taxes, said Ross Gordon, policy director with the Humboldt County Growers Alliance, a local cannabis industry trade group.
“For a lot of businesses, especially for dispensaries, (reclassification is) a really big deal. That’s probably worth tens or hundreds of millions of dollars of tax savings across the state of California,” Gordon said. “That’s something which is likely to benefit everyone. When dispensaries have more money, they can pay the farmers more money.”
Given cannabis’ current status as a Schedule I drug, industry professionals, such as dispensary operators, cannot deduct business expenses and pay federal tax on all their income. If the DEA moves forward with reclassification, cannabis businesses would be able to make normal tax deductions comparable with other, non-cannabis businesses.
The benefits of such a move would mostly fall on dispensaries, but cultivators will see improvements in payments from dispensaries they sell to, Gordon said.
“The most important thing we would hope is that if dispensaries are able to make some money and not have all of it just paid to the federal government in the form of this punitive tax, they would be more able to pay farmers,” Gordon said. “There’s a pretty significant problem right now where many dispensaries just aren’t paying farmers. They’re selling their products and just never paying the farmer for the product they sold.”
However, there will likely be little change in the way cannabis businesses bank: Cash-only will likely remain the standard given the substance would still be federally illegal for recreational use.
To Gordon, the most pertinent question centered on where the federal government would go post-reclassification: if Congress and the Biden administration have the political will to push for federal decriminalization.
“This move does not legalize cannabis, and there’s still a lot of work to do to decriminalize cannabis and to fully legalize cannabis in a way that’s going to let cannabis farmers just be normal farmers and dispensaries just be normal retailers like any other business,” Gordon said.
Jackson Guilfoil can be reached at 707-441-0506.