May 14, 2024 - Health

How reclassifying marijuana could impact Arizona dispensaries

Illustration of a piece of marijuana being held suspended by red tape, a hand holding a pair of scissors is about to snip the tape.

Illustration: Aïda Amer/Axios

The Arizona cannabis industry is cautiously optimistic about a Biden administration proposal to loosen federal marijuana rules.

Why it matters: The proposal could make it easier to conduct clinical and agricultural research of the cannabis plant and cheaper for dispensaries to operate.

  • It would be a much needed win for a fledgling industry in Arizona that typically operates on very tight margins.

Catch up quick: The U.S. Drug Enforcement Agency is recommending that cannabis be reclassified as a Schedule III drug, codifying that it has medicinal value and is less dangerous than its current Schedule I designation.

  • Schedule III drugs have "a moderate to low potential for physical and psychological dependence," and include Tylenol with codeine, ketamine, anabolic steroids and testosterone, per the DEA.

The intrigue: Because of marijuana's Schedule I classification — the same level assigned to heroin, LSD and ecstasy — the IRS prohibits dispensaries from writing off business expenses, resulting in an effective tax rate of about 70%, according to industry experts.

  • Big banks refuse to service marijuana companies because the drug is illegal under federal law and banks are regulated by the feds. This means dispensaries can't accept credit card transactions and have to rely on smaller credit unions for loans.
  • Arizona Dispensaries Association board president Lilach Mazor Power tells Axios Phoenix she's hopeful the reclassification will make it easier for cannabis companies to grow their businesses using the same tools currently available to other industries.

Reality check: It's uncertain whether banks or the IRS would immediately embrace the cannabis industry, since rescheduling by the DEA would not result in national legalization.

  • "Cannabis would still be illegal under federal law, and that is a line many banks in this country will not cross," American Bankers Association spokesperson Blair Bernstein told the Associated Press.

Between the lines: The research benefits of reclassification are much clearer than the financial ones, Arizona Public Health Association executive director Will Humble told Axios Phoenix.

  • There has been very little reputable clinical research of marijuana because of the drug's classification, he said.
  • Universities, hospitals and perhaps even the National Institutes of Health will be more open to funding trials after the DEA confirms the drug has medicinal value, Humble said.

The bottom line: "This is a huge step forward. You're going to have a lot of naysayers out there saying it's not enough. But us in the cannabis industry — we're used to not getting everything we want all at once. We've gotta take what we get when they give it to us," Mint Cannabis co-founder and COO Raul Molina told us.

What's next: The DEA plan still requires approval by the White House Office of Management and Budget.

  • The attorney general is expected to send the rule to OMB for review imminently, administration and congressional sources confirmed to Axios late last month.
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