- President Trump orders cannabis reclassified from Schedule I to a Schedule III drug, expanding research opportunities
- The change could ease financial strain on Michigan cannabis businesses by reducing tax burdens
- Rescheduling may improve access to banking, loans and investment for the cannabis industry
After decades of being treated as a drug with no medical value, marijuana is being reclassified by the federal government, a move that could reshape medical research and ease financial pressure on marijuana businesses.
President Donald Trump on Thursday ordered the US Food and Drug Administration to reclassify cannabis as a Schedule III drug, removing it from a list of Schedule I drugs like heroin and methamphetamine.
“The federal government’s long delay in recognizing the medical use of marijuana does not serve the Americans who report health benefits from the medical use of marijuana to ease chronic pain and other various medically recognized ailments,” Trump declared in an executive order.
The reclassification won’t go into effect until the second quarter of next year, so the impact won’t be immediate. And it won’t legalize recreational marijuana nationwide like Michigan and 23 other states have done at the state level.
Cannabis has long been defined as a Schedule I drug with no accepted medical use and a high potential for abuse. Schedule III drugs like Tylenol, ketamine, and testosterone are treated as less risky, and they can be more easily researched with fewer regulatory controls and more federal funding.
“As soon as it goes into place, you’re going to start to see more studies,” said Jerry Millen, owner of the Greenhouse Dispensary in Walled Lake. “You’ll see attitudes start to change even more around cannabis.”
In recent years, as more states move to legalize recreational marijuana, medical research has shown its benefits. A study published in the National Library of Medicine found that cannabis can be used to manage chronic pain, inflammation and neurological disorders.
Michigan’s Cannabis Regulatory Agency is reviewing the president’s executive order but is urging the federal government to follow it up with “clear guidance and thoughtful implementation that meaningfully addresses long-standing barriers – particularly in banking, research, social equity, and taxation,” Executive Director Brian Hanna said in a statement.
“This development has the potential to move the federal marijuana policy debate forward after years of advocacy by patients, businesses, and states across the country,” Hanna said.
But without “coordinated, practical implementation,” Trump’s order will not unilaterally resolve the challenges faced by patients, businesses, financial institutions, or state regulators,” he added.
Banking, tax breaks
For cannabis businesses, “one of the most positive impacts” of rescheduling marijuana at the federal level will likely be opening up existing tax breaks and deductions they had not qualified for, said Ross Sloan, cannabis banking officer at Dart Bank.
Because cannabis was considered a Schedule I drug, business owners have been unable to write off regular business costs like other companies because of Internal Revenue Code Section 280E, which prohibits anyone who sells Schedule I drugs from tax deductions or credits.
That will likely change, Sloan said.
“(Business owners) currently pay taxes on gross profits rather than net income, as most businesses do. So, most businesses are able to deduct operating expenses, salaries, marketing and all of the things that we think about that businesses need to spend money on to operate,” he said.
Beyond rescheduling, the state’s Cannabis Regulatory Agency has urged “clear guidance” from the federal government on exactly what the policy change means for Michigan businesses, taxes and more.
Without it, the tax system could “remain convoluted and businesses would continue to face obstacles in claiming deductions and credits that are standard for other industries,” the agency said in a series of recommendations submitted to federal regulators last year.
While Dart Bank, based in Mason, has worked with Michigan marijuana businesses since 2018, banks have traditionally been reluctant to work with the industry because marijuana is still illegal federally.
That’s made it harder for business owners to open bank accounts or apply for business loans. Banking fees for cannabis business owners also tend to be higher than for business owners in other industries.
It also means they operate primarily in cash, increasing “the risks associated with theft and money laundering,” state regulators said last year, urging clear guidance on banking as part of any rescheduling.
Michigan industry growing pains
Another way Michigan businesses may benefit from marijuana rescheduling: It could open the door for them to “seek bankruptcy protection like any other legal business, allowing them to restructure debts, protect assets, and continue operations under court supervision,” the state said last year.
Rescheduling comes at a critical moment for Michigan’s marijuana industry. Sales have been slowing and prices have been dropping amid oversupply and increased competition in recent years following a boom when recreational sales began in 2019.
Michigan marijuana businesses are also set to face a new 24% wholesale tax, which was adopted by Gov. Gretchen Whitmer and state legislators to help raise money for long-term road repairs.
The tax is set to take effect Jan. 1. It will be levied at the wholesale level on adult-use marijuana transactions — in addition to existing state taxes.
But rescheduling marijuana could trigger more interest in the drug’s medical benefits that may prompt corporations and larger businesses to enter the market and create new products, predicted Millen, with the Greenhouse Dispensary in Walled Lake
“Now, people in the corporate world are going to take it more seriously as a business. We need to start looking at the cannabis industry like a real business.”
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