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This story was republished with permission from Crain’s Cleveland Business and written by Jeremy Nobile.

The U.S. Drug Enforcement Administration recently confirmed that it is moving to reschedule marijuana as a less dangerous drug, a historic development in the evolution of cannabis policy.

It could still be a long time, however, before this change takes place and the effects of rescheduling spread outward.

For insight into what rescheduling could mean for the country’s blossoming legal cannabis industry, Crain’s spoke with marijuana policy expert Tom Haren, chair of the cannabis practice at Frantz Ward and a key figure behind Ohio’s Issue 2, the adult-use cannabis law approved by voters last fall.

(The following Q&A has been edited for length and clarity.)

The DEA is recommending the rescheduling of marijuana from Schedule I to Schedule III. At a high level, what does that mean? 

This is a historic milestone. Ultimately, what it means is that the DEA and the U.S. Department of Health and Human Services, they now recognize what dozens of states and millions of Americans have known for decades, which is marijuana has medicinal value and has been changing the lives of patients across the country for years and that marijuana can be used responsibly within a regulated framework. That in and of itself, I think, represents another step in the right direction with respect to marijuana reform.

A proposal to move marijuana from Schedule I to Schedule III is an acknowledgment by the DEA that marijuana has medicinal value and a low to moderate potential for abuse. Compare that with Schedule I, which has no medicinal value and a high potential for abuse. The evidence has pretty clearly demonstrated for a long, long time that marijuana does not belong in Schedule I.

To be clear, absolutely nothing immediately changes, right? 

Yes. This is just the first step. It could be a months-long, maybe even a years-long, process by the time rescheduling is ever complete. And lots can happen in that intervening period. The announcement was big news. But as I’m talking to you today, marijuana’s status under federal law is the same as it was two weeks ago. Until this process is completed, it stays a Schedule I drug.

For someone who follows marijuana policy so closely, is this move by the DEA at all surprising?

I don’t know that surprising is the right word. We knew (HHS) would make the recommendation. But it is still notable. The last time we were at this point—near the end of the Obama administration—the DEA declined to reschedule. So it was never certain it would happen.

So where do we go from here? 

There’s a whole process that plays out. The DEA is going to provide an opportunity for the White House to review the proposal and then there’s a notice and a period of opportunity for comment. Then there’s potential litigation that follows. Smart Approaches to Marijuana is already saying they’re preparing to sue the DEA. It seems unlikely this will happen quickly, though we don’t really know how long. We will have to see.

Potential litigation would probably focus on things like the process under which the proposed rule becomes finalized. And I think the DEA is going to receive a lot of public comments on its proposed rule, which will take a lot of time to evaluate.

This may go without saying, but the rescheduling proposal has no impact on the rollout of Ohio’s adult-use program, right?

That’s right. The rollout of adult-use here in Ohio will proceed as is with the (Division of Cannabis Control) working really hard to finalize its rule packages. Adult-use dispensary licenses will be issued at some point this summer. None of this changes as a result of the DEA announcement.

When rescheduling does happen, at least one big industry change could be with the taxes that companies pay, correct? I understand that effective tax rates on cannabis operators could be as high as 70% to 90% of profits.  

Under section 280E of the Internal Revenue Code, businesses that produce and sell Schedule I and Schedule II drugs outside of compliance with federal law can’t take standard business deductions. That restriction would not apply to cannabis companies once rescheduling is final and marijuana becomes Schedule III.

Would that 280E benefit only apply exclusively to medical marijuana companies? 

It partly depends on precisely what the proposed rule from the DEA says. The language of 280E refers specifically to only Schedule I and Schedule II substances. This may be tested in the courts, but my reading is 280E would no longer apply to any state legal cannabis company if marijuana is rescheduled to Schedule III.

This will mean that cannabis companies can finally pay taxes in the same manner as every other business, and the cannabis penalty will go away. This results in more cash for company bottom lines, which puts them on a stronger financial footing, and will hopefully result in lower prices for consumers because the industry will be better able to compete with the illicit market.

Do you really think those savings get passed on to customers? 

Keeping the crystal ball out in front of me … a lack of access to traditional financing requires cannabis companies to finance their businesses at higher interest rates in many instances. As a result, that means higher amounts paid toward debt service payments, which requires higher prices to allow for that debt service while you’re getting drilled on federal taxes.

If a cannabis company no longer has the 280E tax penalty to work out, it could mean that they have more cash on hand, which would allow them to pay off more debt than they had been, or refinance that debt potentially at lower interest rates. All of these things, hopefully, result in lower prices to consumers because, remember, every legal operator is competing with an illicit market that doesn’t pay any taxes.

You referenced financing. Could rescheduling have any impact on banking dynamics, particularly in terms of lending to the marijuana industry? 

Not directly. But it could lead to more fulsome reforms like the passage of Safer Banking or the passage of more fulsome reform legislation at the federal level. It could result in more attractive financing becoming available to cannabis businesses as their financial footing becomes better and, as a result, their risk profile decreases.

A move to Schedule III will not completely resolve the banking issue. That still would require federal legislation. But it probably does improve the landscape versus what it would look like if marijuana remains a Schedule I substance.

The post What Ohio can expect from the DEA’s proposal to reschedule marijuana appeared first on Green Market Report.

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