Marijuana reclassification would give Maryland's cannabis industry a major tax cut

BALTIMORE -- The U.S. Justice Department is moving to reclassify marijuana as a less dangerous drug. The historical drug policy change could end up saving cannabis businesses big bucks.

Marijuana is currently classified as a "Schedule 1" drug alongside heroin and LSD, by being deemed as having a high potential for abuse.

But the U.S. Drug Enforcement Administration is asking to move marijuana to Schedule III, alongside ketamine and some anabolic steroids

The DEA's proposal, which still must be reviewed by the White House Office of Management and Budget, would recognize the medical uses of cannabis and acknowledge it has less potential for abuse than some of the nation's most dangerous drugs. 

The reclassification would not federally legalize marijuana outright for recreational use.  

Reclassification would eliminate Maryland tax code 

Christina Betancourt Johnson, the CEO of Standard Wellness Maryland, said the reclassification would allow more funding for medical research on cannabis and its effects on people.

There's also a major financial impact that cannabis businesses could feel in Maryland.

The national reclassification would eliminate the Section 280E tax code, which prohibits legal cannabis companies from deducting what would otherwise be ordinary business expenses.

"You might have an effective 80 percent tax rate for every dollar earned," Johnson said. "Whereas competitive businesses in any other industry would have a 30ish percent tax rate. So, it's very burdensome."

The tax code elimination would also be significant to the new cannabis businesses that are entering the state's cannabis industry.

In March, Maryland regulators awarded adult-use marijuana social equity licenses to 174 growers, processors and dispensaries.

"This particular rescheduling effort is enormous," Johnson said. "It will allow small business owners, particularly those who came through the social equity round, to get operational and fully reap the benefit of their hard work and their profits without that very burdensome 280E tax code."

The latest data shows how quickly the cannabis industry is growing in Maryland since the state legalized adult marijuana use in July 2023. According to the Maryland Cannabis Administration, the state made $273 million in year-to-date cannabis market sales. 

When will marijuana be reclassified?

However, the drug rescheduling process will take some time. The rescheduling proposal entered the White House Office of Management and Budget on April 30th.

Johnson said the agency then has 90 days to complete its review. But it is expected to work on an expedited timeline.

Then, the proposal goes back to the U.S. Department of Justice for a 60-day public comment period.

During that period, there will be a hearing in front of administrative law judges, who will conduct evidence to prepare a non-binding recommendation for the DEA.

If the judges approve, the DEA would publish a final order in the register. Johnson believes the process could be completed before the elections in November.

President Joe Biden called for a review of federal marijuana law in October 2022.

Schedule III drugs are still controlled substances and subject to rules and regulations, and people who traffic them without permission could still face federal criminal prosecution.