Reform: Our Industry’s Great Divide

When Joseph R. Biden delivered the State of the Union address in March, he became the first United States president to use the word “marijuana” in the constitutionally mandated annual address since Ronald Reagan, and the first ever to suggest a need to rethink federal cannabis policy.

Reagan referenced the plant in his 1988 remarks when touting the success of his administration’s anti-drug campaign, claiming “marijuana use was the lowest since surveying began,” according to contemporaneous surveys of high school seniors. “We can be proud that our students are just saying no to drugs,” he added.

While the context of Biden’s remarks was the same as Reagan’s, the content couldn’t have been more distinct. Rather than proclaim the success of an anti-drug public relations campaign, Biden was, in part, patting himself on the back for promoting policy change. He directed his cabinet “to review the federal classification of marijuana,” he said, and moved to expunge “thousands of convictions for mere possession, because no one should be jailed for simply using or have it on their record.”

Biden’s apparent support for drug policy reform seems like it should be music to the ears of both entrepreneurs and activists who have been calling for and working toward reform for decades. The fact these two constituencies are divided in their response, particularly with respect to the idea of reclassifying marijuana under the Controlled Substances Act (CSA), brings us to another similarity between Reagan’s and Biden’s remarks: In both speeches, the rhetoric exaggerated the reality.

Business benefits

While it’s undeniably significant Biden mentioned rescheduling in his State of the Union address, saying “no one should be jailed for simply using” in this context suggests rescheduling marijuana under the CSA would eliminate the possibility of incarceration for simple use of the drug. The fact is, absent additional statutory changes, mere possession and use of marijuana will remain illegal under federal law if the plant is moved from its current home on Schedule I—the most restrictive classification—to Schedule III, where many prescription medications reside.

Despite the list of things rescheduling won’t accomplish, Curaleaf Chief Executive Officer Matt Darin said there are “several significant benefits for all members of the cannabis industry if the [Drug Enforcement Administration] moves forward with rescheduling.”

“We believe it’s a critical step for the protection of employees, patients, customers, and businesses around the country,” he said, adding rescheduling would “contribute to further de-stigmatization of the plant.”

Of course, the primary reason many cannabis entrepreneurs favor rescheduling is that as a Schedule III substance, cannabis no longer would be subject to Internal Revenue Code Section 280E. Section 280E mandates “no deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business … consists of trafficking in controlled substances [within the meaning of schedules I and II of the CSA] which is [sic] prohibited by federal law or the law of any state in which such trade or business is conducted.”

“Removing the burden of 280E would allow businesses to place further focus on growth and job creation,” Darin said. “For Curaleaf, removal of 280E could equate to savings of more than $150 million in excess tax contributions. With this important change, we believe cannabis businesses of all sizes will be better positioned to thrive and the true potential of this industry could be more clearly realized.”

Moving the plant to Schedule III also would make plant-touching companies more attractive targets for investment, a fact highlighted by recent posts on X (formerly Twitter) by Doug Kass of Seabreeze Capital Partners. Following the marijuana policy roundtable hosted by U.S. Vice President Kamala Harris on March 15, Kass wrote, “We have learned yesterday that the U.S. Drug Enforcement Administration will shortly approve a rescheduling of cannabis to Schedule III—and that the biggest legal hurdle [is] an international treaty (the Single Convention on Narcotic Drugs of 1961), to which the U.S. is a signatory. … For the first time in history, cannabis equities should be bought and held—with large upside opportunity.” In a separate post, Kass counseled investors to “be greedy when others are fearful.”

Even those who oppose rescheduling (or rescheduling as a standalone measure, at least) acknowledge the benefits a move to Schedule III would present to cannabis companies. What concerns them is the bigger picture, including all the things rescheduling would not accomplish for the broader community of medicinal marijuana patients and adult-use consumers.

“I recognize that many folks in this space are in a place of financial desperation,” said Cat Packer, director of drug markets and legal regulation for the Drug Policy Alliance, “but I think [rescheduling] is a short-term calculation and one that really puts the interests of the cannabis industry above the larger community that’s impacted by federal criminalization.”

Community drawbacks

While support for rescheduling probably is best not labeled “overwhelming,” many business owners and executives approve of the initiative. Nevertheless, more than a few hesitate to share their insight on the record, in part because they do not want to be seen as opposing broader policy reform simply because they believe rescheduling will benefit their businesses. The prevailing attitude can be summarized best as “I’d like more meaningful reform, but I’ll take what I can get.”

From Packer’s perspective, attitude contagion is a real concern. She worries the sense of resignation adopted by business owners could be adopted by elected officials or even spread to the grassroots movement championing full legalization and decriminalization of the plant.

“I’ve seen it firsthand as a local regulator in the City of Los Angeles trying to move cannabis policy forward, and it’s happening all across the country,” she said. “Folks have policy fatigue. Even the movement has fatigue. And the reality is that the movement has changed a lot. A lot of organizations aren’t being funded the same way because the industry isn’t funding the movement in the same way. I think there is this reality where our politicians could look at this and say, ‘Well. at least we gave folks what they asked for.’”

In truth, people have asked for, and have been promised, much more than rescheduling alone. The Biden administration’s bold proclamations about reform being necessary because “nobody should have to go to jail for smoking weed,” as Harris has reiterated several times, simply aren’t addressed by rescheduling.

Yet, after so many federal bills dying just short of the goal line, some in the business community have begun believing rescheduling represents a more significant policy change than it does. And that is part of the problem, Packer noted.

“I think part of the challenge is there’s been so much hype, specifically fueled by the industry around selling this as a victory, that there’s just been a lot of misinformation that’s been shared,” she said. “We’ve seen this misinformation spread like wildfire. I find myself on social media sometimes, looking at the rhetoric around the scheduling conversation, and I’ve seen folks say things like ‘I support Schedule III because it will at least protect people at the federal level if they’re medical patients.’ That’s not the case. I’ve heard folks say ‘Well, at least it’ll make it so we don’t have to do the SAFE Banking Act anymore.’ That’s not the case. There are all these different pieces that I think folks have lumped in with this scheduling review.”

There’s a risk this kind of misinformation could impact the broader policy reform movement, Packer said, particularly when dissemination “happens kind of en masse without a consequence or without folks checking [out the facts].

“It is actually going to have an impact on the movement, not just politicians,” Packer said, “because then you don’t have folks going to the politicians and saying, ‘Hey we still need the SAFE Banking Act’ or ‘Hey, we still need to address protections for medical patients or adult-use.’”

While some impacts of rescheduling are uncertain, what’s clear is the move to Schedule III would not prevent arrests, prosecutions, deportations, or civil asset forfeiture under federal law. Cannabis’s status as a controlled substance would not change.

In the report Legal Consequences of Rescheduling Marijuana, the Congressional Research Service (CRS) noted that in “sharp contrast to the stringent federal control of marijuana, in recent decades nearly all the states have changed their laws to permit the use of marijuana (or other cannabis products) for medical purposes,” and “twenty-four states and the District of Columbia have passed laws removing certain state criminal prohibitions on recreational marijuana use by adults.” Nevertheless, as the “Supreme Court has recognized, states cannot actually legalize marijuana because the states cannot change federal law, and the Constitution’s Supremacy Clause dictates that federal law takes precedence over conflicting state laws.”

In addition, the report noted, “Moving marijuana from Schedule I to Schedule III, without other legal changes, would not bring the state-legal medical or recreational marijuana industry into compliance with federal controlled substances law. With respect to the manufacture, distribution, and possession of recreational marijuana, if marijuana were moved to Schedule III, such activities would remain illegal under federal law and potentially subject to federal prosecution regardless of their status under state law.”

The CRS report’s findings compose a big part of why activists like Packer oppose rescheduling absent additional policy reforms. They also explain why the communities served by activists, especially communities of color, feel the Biden administration has come up short on its promises of reform.

Asked whether she thinks the Biden Administration is taking for granted the support of Black and brown communities and the activists who advocate for full decriminalization, Packer said the disconnect between the administration’s rhetoric and its actions represents “a missed opportunity.”

“While there have been these efforts by industry participants and other stakeholders who are enthusiastic about reform to take [rescheduling] as a win, community members are speaking for themselves,” Packer observed. “Black and brown communities are speaking for themselves and pushing back on this rhetoric and saying, ‘You promised, particularly to our communities, that you would decriminalize and expunge records, and you’ve acknowledged that this is a racial equity issue, and you’ve acknowledged that criminalization has failed, and you said you wanted to right wrongs, and you recognize that there are barriers to housing, education, and employment. So, what are you going to do about it?’ And I think [the response is] going to be clear one way or another—and it may be later rather than sooner, and that’s the concern.

“I think folks are increasingly recognizing that this is less than what was promised and unless there’s an acknowledgement from the administration that this is less than what was promised and a commitment to do more, people are going to feel like the rhetoric of the harm against Black and brown communities is just being used politically, without any real intention to address those issues,” she added.

Is rescheduling reform?

Following the State of the Union, a chorus of statements issued by industry executives hailed Biden’s comments and argued that a sitting U.S. president mentioning marijuana policy reform at all was a major development.

Darin’s voice was part of the chorus. “It’s a significant moment for the country to hear cannabis rescheduling mentioned during President Biden’s State of the Union speech,” he said following the address. “This level of public support of cannabis reform at the federal level is long overdue and demonstrates a strong point of leverage for cannabis politically.”

According to Poseidon Investment Management Managing Partner Emily Paxhia, “The topics addressed in the State of the Union are a barometer for the will of the people. … President Biden’s comments tell us the executive branch is listening.”

Matt Hawkins, founder and managing partner at Entourage Effect Capital, added, “Rescheduling cannabis has the potential to significantly transform the landscape for all legal operators, consumers, and patients across the country.”

As historically significant as the moment may have been, did it really pressage substantial policy reform, though? Without concomitant statutory and regulatory changes, would moving the plant to Schedule III accomplish significant, meaningful change?

“We can talk semantics, but I acknowledge [rescheduling] is ‘significant,’” Packer admitted. However, “it’s significant because our policies are so regressive. It’s not like this is a sign of progress; this is a sign of how regressive our cannabis policies are today. We could talk about modernizing cannabis policy and this being a significant or meaningful political statement if we were in 1972, but it’s 2024 and we have twenty-four states that have passed adult-use legalization.”

Packer explained her skepticism, precipitated by the disconnect between the administration’s rhetoric and its actions, doesn’t mean she fails to appreciate the symbolic importance of the president speaking about the need for marijuana policy reform in such a high-profile setting.

“I’m excited about the fact President Biden mentioned [reform] in the State of the Union,” she said. “I think all the rhetoric is good because it creates some accountability, but it just seems so conveniently timed. The reality is that [the Biden administration has] been in office for almost four years now, and this is something they could have done immediately. They could have had a roundtable and talked about this earlier on. There was no obstacle to them issuing pardons. So is this a one-time thing, and we’re just going to see the same clips of this roundtable for the next couple of months? Are we going to see a further commitment from the administration on this? I would love for that to be the case.”

Are baby steps enough?

“In the cannabis industry, we have experienced many years of incremental change toward recognizing the plant for what it is: a natural medicine that adults should have legal and safe access to,” he said. “Rescheduling is one important lever that needs to shift in order to continue to destigmatize and normalize cannabis both politically and within society.

From Darin’s perspective, while rescheduling might represent a small step forward, it’s an important one. He also believes rather than blunting the momentum toward further reform, rescheduling will prove to be an important step in a continuing process that has been in play for some time.

“We believe rescheduling would be a monumental catalyst for cannabis politically and an important step in the right direction,” he continued. “As recommended by both President Biden and Vice President Harris, we hope recategorization occurs promptly.”

Voices on both sides of the rescheduling debate agree the industry, the patients and customers the industry serves, and the government officials who determine how the market is regulated all stand at a crossroads right now. Where opinions diverge is on whether rescheduling marks a step forward or a misstep that could derail further policy reform efforts.

“There’s totally an opportunity right now for the Biden administration to pick up the baton and lead on this,” Packer said. “But that window is closing, and the fact folks aren’t moving with much urgency, I think, is causing concern. Even folks like me who remain highly skeptical at the same time recognize if they want to do something, this is the time to do it. And it would be in their best interest—and the best interest of the American people—for the federal government to fix our cannabis laws.”