Biden’s Handout to the Pot Industry

After months of uncertainty, the Drug Enforcement Agency on Tuesday waved forward the Biden administration’s efforts to change the legal status of marijuana—a long-sought goal for pot advocates.

The proposal, not yet finalized, would see marijuana “rescheduled” on the list of controlled substances from Schedule I (denoting high risk of abuse and no accepted medical use) to Schedule III (accepted medical use but moderate to low potential for abuse). The decision comes after the Department of Health and Human Services (HHS) claimed to find evidence that marijuana has medical uses. Opponents of legalization hotly contest that claim, saying HHS broke from established practice in making that decision.

While legalization supporters have cheered the change, its impact will be slight. The primary beneficiaries will be states’ legal marijuana businesses, which will see up to $2 billion in tax relief. In its haste to appease the pro-marijuana base, the administration has done nothing to advance the justice it claims to believe in and everything to advance the interests of big business.

The core of the issue is that rescheduling is not the same thing as legalization (creating a legal framework for retail sales) or even decriminalization (removing criminal penalties for possession or selling). Marijuana will remain about as legally controlled as it was before rescheduling. As the Congressional Research Service noted earlier this year, rescheduling would not make states’ legal businesses compliant with federal law. Nor would it allow marijuana to be dispensed as a prescription drug. (For that, the Food and Drug Administration would need to approve some medical use.) Rescheduling would also have little impact on incarceration or marijuana-related enforcement, both of which are, in any case, already quite rare. It may expand the availability of pot for research purposes, but the DEA had already moved to make that easier.

The major impact of rescheduling, instead, would be on the bottom line of states’ legal marijuana businesses. Under an obscure section of the U.S. tax code—26 U.S.C. § 280E—companies cannot write off business expenses if their trade “consists of trafficking in controlled substances.” There is, however, a loophole. The law specifies that, by “controlled substances,” it means only those in Schedules I and II. Shifting marijuana to Schedule III, then, means that state businesses can deduct business expenses.

Rescheduling would be a major boon to an industry that has struggled to get off the ground, and marijuana stocks surged on news of the DEA’s move. The law currently imposes often-substantial tax burdens on state marijuana businesses. One marijuana research firm has estimated that it can drive tax rates as high as 70 percent. Several states permit these businesses to deduct their expenses from state taxes instead, but that can only take them so far.

Rescheduling means many more dollars for businesses selling an addictive, harmful substance—and, as RAND drug policy expert Beau Kilmer told the Associated Press, potentially more advertising for marijuana.

That’s a problem for those wary of “big green”—a group that, in theory, includes President Joe Biden. Biden has embraced decriminalization, but true to his roots as a 1990s-era drug warrior, he has consistently opposed full federal legalization. That position puts him out of step with his party: 87 percent of Democrats support marijuana legalization, according to Gallup.

Consequently, the most important question may be what comes after rescheduling. The administration may see the move as a sop to marijuana advocates, forestalling full legalization. Or it may be a prelude to Biden “evolving” on pot, with a push for full federal legalization coming soon.

In either case, no one should be confused by what the change means. The Biden administration is trying to sell its marijuana policy as part of a broader racial and social justice agenda, but what rescheduling really means is more money in the pockets of drug peddlers. That’s nothing to cheer about.

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