In a short amount of time, two cannabis developments have occurred at the federal level. At the end of August, the HHS recommended to the DEA that cannabis should be moved from Schedule I to Schedule 3 under the Controlled Substances Act. Just last week, the SAFER Banking Act was approved by the Senate Banking Committee for the first time. While the outcome of both cases is not yet certain, they have led to lots of discussion in the industry. “Any evolution for this industry is of great benefit for all of us, and this is probably the biggest cannabis news we’ve had in years,” said Adam Stettner, Founder and CEO of FundCanna. “These past few years, the news about this industry has not been positive. When you’ve got a stagnant and struggling market, developments like these are welcome news.”
Adam Stettner
Positive attention
While it is still uncertain how the rescheduling and SAFER Banking Act will continue to develop, Adam says that the positive attention it has already given cannabis was highly needed. “The cannabis industry has seen a slowdown and hesitancy from investors. I think that did not just come from their experience of seeing investments stall or progress slowly. They’re also seeing a large amount of negative news about the industry. There’s no doubt investors are watching and reading, so momentum like this definitely drives interest again,” Adam says.
Taxation
According to Adam, the biggest change that the industry would notice if cannabis were to be rescheduled is taxation. “Section 280E of the tax code would likely no longer be relevant. With cannabis being federally illegal, the current taxation levels are severe,” Adam says. “There is no ability to write off the cost of goods sold (COGS), which is a major issue. Taxes for cannabis companies approach rates of nearly 70% because they’re not able to deduct those costs. Rescheduling to Schedule 3 would likely change that. If costs associated with deriving revenue would become deductible, that would have a dramatic impact on taxation and ultimately serve to increase the amount of revenue that flows through cannabis businesses,” Adam says.
Interstate commerce
With these recent developments, there has been some talk about the possibility of interstate commerce. “We don’t know yet the exact consequences of a change to Schedule 3, so we can’t be certain that interstate commerce will be a result. Yet, we can assume that it will happen eventually,” Adam says. “For certain markets and companies, interstate commerce would be a major benefit. Yet for others, it could cause challenges.” Adam gave nascent states that have recently entered the legal market as an example. “They will have to deal with mature states being allowed to export their product. Northern California, for example, is known for producing a prime product. Not that the product in new states is not excellent, but there will be consumers in these new states that want to buy California flower. The new local producers will now have to compete with those imports,” Adam says. “I do think that interstate commerce would be a very good development for the industry. But it’s important to be aware that it will be received with mixed feelings depending on where companies are geographically and their place in the supply chain.”
“The clock is ticking”
Adam stresses that the clock is ticking when it comes to rescheduling cannabis. “The current administration has more interest in this issue than likely the next administration. I’m not assuming a change in administration, I just think there are no guarantees,” Adam says. “So, for the sake of the industry, I believe it has to happen under this administration.” Yet, it won’t come without its challenges. “Much more needs to come to the surface in order for us to understand what the rescheduling will really mean for the industry. What will the tax implications be? How will it affect the quality and safety standards? What is the impact on recreational cannabis? Moreover, some of the industry will be hesitant to accept the reschedule, believing it’s not enough. I partly agree that Schedule 3 is insufficient, but it is a giant step in the right direction.”
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