Leaders in Nevada’s multimillion-dollar legal cannabis industry are welcoming news that the Biden administration is working to reclassify marijuana as a less dangerous drug, but they say the devil will be in the details.
The Associated Press reported Tuesday that the U.S. Drug Enforcement Administration will recommend a reclassification of marijuana from a Schedule I drug, where it currently resides alongside LSD and heroin, to a Schedule III drug. The reclassification would recognize the medical uses of cannabis and acknowledge it has less potential for abuse than some of the most dangerous drugs.
Las Vegas cannabis industry leaders, however, are stressing the changes would not legalize marijuana outright and still leave the industry in a regulation pickle.
Riana Durrett, director of the Cannabis Policy Institute at UNLV, described the reclassification as making marijuana only “a little less federally illegal,” but said it wouldn’t guarantee legalization of medical cannabis. Nevada is one of 38 states that has legalized medical marijuana sales and one of 14 states to legalize marijuana for recreational use. Both remain illegal under existing federal law.
“I think the sentiments and the understanding is that it is leaning toward legalizing state medical sales, but we don’t know if that’s what it does,” Durrett said. “The state-licensed medical sales could still be just as illegal after this.”
The reclassification comes with a hefty rulemaking process — including a public comment period and a review by an administrative law judge — which could decide the breadth of access to the drug under its new scheduling. Litigation challenging the judge’s ruling is also highly likely, Durrett said, further delaying the final approval for years.
Nevada has its own drug scheduling enshrined in state law, which also lists marijuana as a Schedule I substance. The federal change would not shift Nevada’s scheduling, which is decided by the Nevada Board of Pharmacy.
Despite the unclear interpretation of the classification, Durrett said there will still be major ramifications from the reclassification, specifically in dispensaries’ finances. Because of Internal Revenue Code Section 280E, businesses dealing with Schedule I substances — like dispensaries — are ineligible for tax deductions for their businesses, making their federal taxes much higher. The drug’s reclassification would allow businesses that sell marijuana to deduct expenses like marketing, travel and utilities from their taxes.
Many dispensaries opt to not pay federal taxes altogether to forgo any added tax burden and legal concerns, but Durrett said Nevada dispensaries are usually more compliant than their out-of-state counterparts.
“It’s imposed on anybody conducting business with Schedule I or Schedule II substances, which it is crazy to imagine that the federal government is saying, ‘You’re federally illegal, we’re going to lock you up in prison if you do this conduct, but also make sure you can pay your taxes,’ ” Durrett said.
Federal legislation reintroduced Wednesday in the U.S. Senate would completely remove cannabis from the federal list of controlled substances, expunge criminal records of Americans with low-level marijuana offenses and set new standards to prevent impaired driving. The Cannabis Administration and Opportunity Act, according to Senate Majority Leader Chuck Schumer, D-N.Y., would decriminalize, regulate and tax cannabis. The legislation, which has 18 co-sponsors in the Senate, empowers states to create their own cannabis laws. This ensures that businesses in the cannabis industry or adjacent industries would no longer be denied bank accounts or financial services simply because of their ties to cannabis, Schumer said.
A report mandated by the Nevada Legislature on potential effects of rescheduling marijuana was completed in February. The report highlighted that relief from the current tax codes would also allow legal sales of cannabis to compete better with illegal sales, which remain strong, according to local experts.
The report found that the most significant change would be how cannabis businesses are taxed, a spokesperson for the Nevada Cannabis Compliance Board said in a statement.
The report also stated the rescheduling “will likely have no effect on access to banking in the state of Nevada or elsewhere,” but others in the state are more optimistic.
Bob Groesbeck, co-CEO of Planet 13 dispensary, said in a statement to the Sun the rescheduling could be the start of a wider conversation.
“Rescheduling cannabis represents a pivotal initial step, fostering scientific advancement, promoting social justice through decriminalization, and driving robust economic growth,” Groesbeck said. “Rescheduling cannabis should also pave the way for much-needed safe banking solutions.”
Despite strict federal oversight over the drug, the marijuana industry has flourished in Nevada, netting around $1 billion annually. Nevada’s first regulated cannabis lounge, Smoke and Mirrors, opened in February in Las Vegas, allowing a venue for legal consumption of marijuana outside of a private residence.
Rescheduling may also encourage other businesses to warm up to marijuana sales, according to Durrett and the report. The lowered tax burden of legal marijuana sales could encourage more lenders to invest in already-established businesses, according to the report.
Reclassification could also sway the Nevada Legislature to revisit its restrictions on the gaming industry investing in cannabis sales, Durrett said. Currently, sales and consumption of marijuana in gaming establishments is prohibited.
“This is even a bigger issue in Nevada than it is in some other states, given our biggest industry, gaming,” Durrett said.
Durrett said much of the long-term effects of the reclassification are simply speculative until later on in the process. It is unclear as of now when the DEA will officially send its recommendation forward.
“The question again, remains: Will this eventually allow for the sales at the state level to be legalized?” Durrett said. “We still don’t know. That’s the huge question.”
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