Change in federal drug classification could help cannabis shops

Steve Reilly, general counsel for the INSA marijuana dispensary in Easthampton, displays marijuana flowers at the dispensary, Feb. 6, 2018.

Steve Reilly, general counsel for the INSA marijuana dispensary in Easthampton, displays marijuana flowers at the dispensary, Feb. 6, 2018. STAFF FILE PHOTO

Dick Evans of Northampton waits in line at NETA in Northampton for the first chance to legally buy recreational marijuana in the city on Nov. 20, 2018.

Dick Evans of Northampton waits in line at NETA in Northampton for the first chance to legally buy recreational marijuana in the city on Nov. 20, 2018. STAFF FILE PHOTO/CAROL LOLLIS

Constant Poholek and his son, Ryan Poholek, opened Green River Cannabis Co. on Deerfield Street in Greenfield in 2023.

Constant Poholek and his son, Ryan Poholek, opened Green River Cannabis Co. on Deerfield Street in Greenfield in 2023. STAFF FILE PHOTO/PAUL FRANZ

By JAMES PENTLAND

Staff Writer

Published: 05-05-2024 11:11 AM

In the wake of the Justice Department’s proposal to reclassify cannabis as a less dangerous drug, dispensary owners say the change would help their business, especially on taxes.

“The immediate impact would be for the government to treat us like other businesses for tax purposes,” said Steve Reilly, head of government relations and general counsel for INSA, an Easthampton dispensary.

With cannabis classified as a Schedule I drug along with heroin, LSD and ecstasy — drugs with no currently accepted medical use and a high potential for abuse — medical and recreational dispensaries can write off only one business expense on their federal taxes: the cost of the goods sold.

“Every other business can deduct payroll, insurance, marketing, rent,” said Rich Rainone, co-founder of Dazed Cannabis, which has stores in Holyoke, Monson and Manhattan. “We don’t have those write-offs.”

Reclassification to Schedule III, which would lump cannabis in with ketamine, anabolic steroids and Tylenol with codeine, also would open the door to more research, which could boost the drug’s medical applications, Reilly said.

The change, prompted by a directive from President Joe Biden to review the issue, would be an acknowledgment from the federal government that there are medical benefits to cannabis use, he said.

Rainone said he sees reclassification as a step in the right direction, but also thinks it raises the risk of multinational corporations homing in on the cannabis trade.

“This is an opportunity for Big Pharma to get involved in research and sell it with a prescription,” he said.

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Richard Evans, a Northampton lawyer and longtime cannabis legalization advocate, agreed that this could happen.

“I think it’s likely the benefits of cannabis will be exploited fully by Big Pharma,” he said.

At the same time, Rainone wonders if the government will adjust the current rule that requires anyone who dispenses a Schedule III drug to be classified as a pharmacist.

No changes are expected to the medical marijuana programs now licensed in 38 states or the legal recreational cannabis markets in 23 states, but it’s unlikely they would meet the federal production, record-keeping, prescribing and other requirements for Schedule III drugs, an Associated Press analysis stated.

Reclassification won’t change cannabis businesses’ inability to deal with banks or credit cards, or to obtain home mortgages. Advocates have been pressing for passage of legislation that would free banks from the sanctions they face under current law for dealing with the cannabis industry.

The SAFE Banking Act of 2021 passed the House that year and was referred to the Senate Banking Committee.

That committee this year passed the SAFER Banking Act, which the American Bankers Association, noting that many banks refuse to deal with marijuana businesses, is urging Congress to pass.

“The solution is the bipartisan SAFER Banking Act, which would allow banks to provide services to the cannabis industry in those states where it’s now legal,” the association said in a statement Tuesday.

Constant Poholek, owner of Green River Cannabis Co., said the proposed reclassification would allow his business to deduct business expenses from its taxes, obtain access to lower insurance premiums and widen its sources of funding for business expansion. He said taxes currently take up anywhere from 65% to 75% of the business’ gross annual revenue and the dispensary often pays exorbitant insurance premiums, since there’s a limited number of insurance companies who are willing to insure cannabis businesses.

“Any kind of expansion in the business is difficult because we have to self-fund everything that we want to do,” Poholek said.

Since cannabis is currently a Schedule I drug, it remains federally illegal to transport marijuana products across state lines, even between two states in which the drug is legal. Although he does not foresee cannabis being sold at large retailers such as Walmart or CVS anytime in the near future, Poholek said he predicts the reclassification will result in the emergence of larger, multi-state cannabis businesses.

Poholek said Green River Cannabis Co. has seen a diverse customer base since its opening on Deerfield Street in Greenfield last year, with customers ranging in age from 21 to 90. He said many of his customers have reported positive results after using products tailored to improve medical ailments such as insomnia, pain or simply general lack of focus. He added that with medical cannabis use recognized on a federal level, he hopes both the medical field and the cannabis industry will be able to learn more about the drug’s medicinal qualities.

“I see a lot of positive effects in the community. ... I can’t tell you how many customers we believe we’ve helped, whether it’s a customer with back pain or a customer who has difficulty sleeping,” Poholek said. “It would be a breath of fresh air for the industry and the community.”

Reilly noted that legal challenges to the proposed reclassification are still possible, but it could become effective as early as the fall. The proposal must be reviewed by the White House Office of Management and Budget, and then undergo a public comment period and review by an administrative judge.

Many advocates say reclassifying cannabis fails to clear up the confusion between state and federal policy, and that it should be decriminalized on the federal level.

“The bottom line is that marijuana policy will remain unclear,” Evans said.

“The fact is, it doesn’t belong in the Controlled Substances Act in the first place.”

James Pentland can be reached at jpentland@gazettenet.com. Reporter Anthony Cammalleri contributed to this article.