EXCLUSIVE: Key Legal And Tax Ramifications Of Federal Cannabis Rescheduling, Insights From Dykema Gossett PLLC

Amidst potential shifts in U.S. cannabis regulation, Lance Boldrey, the leader of Cannabis Law Practice at Dykema Gossett PLLC, has analyzed the potential impact of reclassifying cannabis to Schedule III under the Controlled Substance Act.

Boldrey has stated that rescheduling cannabis from Schedule I to Schedule III will pose unique legal challenges and likely necessitate FDA testing and approval for various uses of cannabis. This would significantly impact the current dynamics of the industry.

“If cannabis transitions to Schedule III, it could be sold as medicine. But that would require FDA testing and approval, likely separately for every different ailment, delivery method, and maybe even by strain. And then cannabis would need to be produced consistently and sold via prescription,” Boldrey explained in an exclusive interview with Benzinga.

He also noted that while prescriptions could include ‘off-label’ use, it would be different from simple adult use. Boldrey does not foresee existing businesses transitioning to Schedule III, but rather competing with the pharmaceutical industry. This shift could result in cannabis being sold strictly as a prescription medicine, which would alter the landscape for existing businesses.

Boldrey advises cannabis operators and investors to engage with legislators and regulators to advocate for retaining the existing systems. This is in preparation for an uncertain future where cannabis companies might compete with the pharmaceutical industry. He expressed concern that state regulators and legislators might adopt standards from the pharmaceutical world that cannabis companies may not be able to satisfy.

One crucial positive outcome of rescheduling cannabis to Schedule III would be the significant tax relief for cannabis businesses. The removal of Internal Revenue Code Section 280E would allow these businesses to deduct ordinary expenses, revolutionizing financial structures and operations. Investors are advised to reevaluate company structures and prepare for a landscape where taxation no longer dictates business decisions.

Boldrey does not see rescheduling as fundamentally transformative, except for its tax implications and the potential increase in cannabis investments. He suggests that key legal reforms should focus on creating a level playing field, perhaps advocating for full descheduling of cannabis or a separate federal regulatory framework similar to tobacco.

He also emphasized the need for compliance and mergers and acquisitions considerations within the sector. Rescheduling may not end current state regulatory frameworks but could lead to more complex compliance requirements. For mergers and acquisitions, the absence of 280E would significantly alter financial projections and investor interests, presenting both opportunities and challenges in deal structuring.

In conclusion, the potential reclassification of cannabis to Schedule III under the Controlled Substance Act would have significant legal, regulatory, and financial implications for the industry. Cannabis businesses and investors must stay informed, engage with legislators and regulators, and adapt their strategies to navigate this uncertain future.

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