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HHS Recommends Reclassifying Cannabis As a Lower-Risk Drug

S.J. Steinhardt
Published Date:
Sep 5, 2023


The U.S. Department of Health and Human Services (HHS) has recommended reclassifying cannabis as a lower-risk drug, which would have positive implications for the burgeoning recreational cannabis industry, various news organizations reported.

Drug Enforcement Administrator (DEA) Anne Milgram received a letter from a top official at HHS on Aug. 29 that called for cannabis to be reclassified as a Schedule III drug under the Controlled Substances Act, according to Bloomberg News.

A DEA spokesperson confirmed that the department had received the letter with HHS’s recommendation. With final authority to reschedule a drug, DEA will now initiate its own review, the spokesperson said.

Cannabis is currently classified as a Schedule I drug under the Controlled Substances Act. It is deemed to have no currently accepted medical use and has a high potential for abuse. This perspective conflicts with that of the states that now allow the drug to be used recreationally and to be prescribed for treatment of conditions such as glaucoma and anxiety. The continued Schedule I classification has hindered the growth of a multibillion-dollar industry in the 38 states that allow it for medical use and in the 23 states, plus the three U.S. territories and the District of Columbia, that have legalized its recreational use.

The news caused a rise in shares of cannabis companies, Bloomberg and CNBC reported.

At her White House press briefing, Press Secretary Karine Jean-Pierre said that HHS and the Department of Justice, which oversees the DEA, were engaged in an “independent process” that’s “guided by evidence.”

Moving the drug to Schedule III would be the most significant federal cannabis reform in modern history, Edward Conklin, executive director of the U.S. Cannabis Council, told Bloomberg.

“Cannabis should have never been scheduled alongside heroin and placed at the center of our nation’s destructive drug war,” he said. “Thankfully that era is coming to a close and is being replaced by a modern and scientific approach to regulating this plant.”

As cannabis is a cash crop in the states in which it is legal, a federal reclassification could also portend a new source of federal tax revenue. Currently, enterprises dealing in Schedule I substances cannot write off expenses on their federal tax returns under Internal Revenue Code Section 280E. “The removal of 280E will have a widespread material impact on the financial performance of every company in the industry, large and small, public and private,” Jeff Schultz, a cannabis attorney at Foley Hoag, told CNBC.

The proposed reclassification would do “nothing to align federal law” with the states, which each have their own laws to regulate it, National Cannabis Industry Association CEO Aaron Smith wrote in an emailed statement to Bloomberg. “The only way to fully resolve the myriad of issues stemming from the federal conflict with state law is to remove cannabis from the Controlled Substances Act and regulate the product in a manner similar to alcohol.”

To learn about the ethical considerations that CPAs and CPA firms should be aware of when considering services to the state legal, regulated cannabis industry, attend the Foundation for Accounting Education's Ethical Considerations in Working with Cannabis Webinar on Sept. 14.

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