Since marijuana is legal in California — has been for years — the U.S. Drug Enforcement Administration move to reclassify marijuana as a less dangerous drug is no big deal for weed purveyors and consumers in the Golden State, right?
And there’s where you would be incorrect.
Because it’s precisely the current federal regulations’ stranglehold on how cannabis growers and shops can do business that is one of the key reasons their industry hasn’t taken off as once promised — hasn’t produced the tax revenues for other Californians that were envisioned with the passage of Proposition 64 making pot legal here, hasn’t significantly reduced the attractions of the underground trade in our state for both sellers and buyers.
Banks are under federal regulation, and how can you start a business without loans and the general aid of the banking system? Or insurance?
How can you run a consumer-goods retail operation these days and not be able to accept credit cards without running through a maze of regulations that any other shop selling literally any other product doesn’t have to navigate?
But those are the major costs of doing business that marijuana growers and sellers in California must deal with — they must see cash as king at a time when cash is otherwise disappearing.
And the tax situation — don’t even ask.
But those are some of the strictures that could well be eased as the federal Drug Enforcement Administration proposes moving marijuana from the list of Schedule I drugs, which includes heroin and cocaine, to Schedule III drugs, which include ketamine and anabolic steroids.
The White House still has to formally approve, and President Joe Biden throughout his long political career has been a slow learner — a troglodyte, even — in his views on liberalizing the nation’s various prohibitions.
But in this election-year atmosphere, with his support from younger voters on the wane, it’s hard to imagine that he wouldn’t see the political benefits to just saying yes to reclassification.
As Salvador Hernandez reported this month in the Los Angeles Times, the tax burden on legal pot entrepreneurs in California “has been particularly onerous. Section 280E of the federal tax code bars businesses involved in ‘trafficking’ of Schedule I or II substances from deducting the expenses they incur. As a result, they are taxed on every dollar they collect, not just their profits.”
Little wonder that the shops must charge so much for their product, making the black market more attractive to buyers. And there’s a health issue here for cannabis consumers in the state: One of the best parts of the Prop. 64 legalization was the insistence that buds sold here be grown without harmful chemical pesticides and herbicides but instead be certified organic. That fellow down the block peddling dime bags operates under no such rules.
The California Department of Tax and Fee Administration says that the industry reported about $5.1 billion in revenue in 2023, which was less than the previous year and quite a bit — 11% — less than in 2021.
If marijuana is moved to Schedule III, “players in that industry for the first time will be able to take standard tax deductions that other businesses take,” Paul Armentano, deputy director of the National Organization for the Reform of Marijuana Laws, NORML, told the Times. “The biggest change is going to be how the industry does business.”
All of this said, the federal government still ought to completely remove marijuana from the federal scheduling system in the first place and end any federal prohibition of marijuana and marijuana businesses. Schedule III is still unjustifiably restrictive. And while California might see the legal market adapt better under a Schedule III regime, the state still has lots of work to do to loosen regulations on legal marijuana businesses.
