The Biden administration plans to remove marijuana from a list of the most dangerous and highly regulated drugs, the Department of Justice said Tuesday. 

The Drug Enforcement Administration will propose moving the drug from a Schedule I substance, which also includes heroin and methamphetamine, to Schedule III, which is the category for regulated-but-legal drugs including testosterone and Tylenol with codeine.

“Today, the Attorney General circulated a proposal to reclassify marijuana from Schedule I to Schedule III,” DOJ spokesperson Xochitl Hinojosa said in a statement to States Newsroom. “Once published by the Federal Register, it will initiate a formal rulemaking process as prescribed by Congress in the Controlled Substances Act.”

The reclassification would not have transformative effects in New Hampshire, experts say. Recreational cannabis is still illegal in the Granite State, though since 2017, people have been allowed to possess up to three-quarters of an ounce at a time without the threat of jail time.

But the reclassification will help the state’s therapeutic cannabis scene – particularly when it comes to accessing federal tax breaks. 

“If you view cannabis reform as an irresistible force and the DEA is the immovable object, this is the first movement ever,” said Matt Simon, director of public and government relations for GraniteLeaf Cannabis, which is based in Chichester and Merrimack. “This was the first they’ve ever budged.”

“In terms of practical impacts: important but limited,” he added.

Cannabis has been listed as a Schedule I drug under the Controlled Substances Act since 1971, even as many states have moved to legalize recreational use for more than a decade and medicinal use for even longer. 

State-legal marijuana businesses make up a multibillion-dollar industry, but the illegal status of the drug under federal law creates barriers unseen by other industries, including a lack of access to banking and the inability to deduct business expenses from taxes.

Social justice advocates have also noted that prosecutions for marijuana-related crimes have hurt communities of color. Many of those convicted for offenses related to marijuana have not benefited from the recent decriminalization in many states. 

Moving cannabis to Schedule III would allow a more permissive approach to the drug, including permitting greater study of medicinal uses and allowing related businesses to use a common tax deduction.

Representatives in New Hampshire’s therapeutic cannabis industry say the rescheduling could ease longstanding financial struggles. 

Currently, there are three nonprofits operating seven different “alternative treatment centers” – facilities where people with medical marijuana identification cards may purchase cannabis products to help their condition.

While those nonprofits operate legally under state law, they have faced difficulties under federal tax law due to the scheduling of cannabis, according to Simon. Because marijuana has been placed in the strictest enforcement category – Schedule I – organizations that sell it are barred from certain federal tax deductions. Section 280E of the Internal Revenue Code prohibits any business from deducting business expenses related to the sale of Schedule I or II substances.

Due to the current set-up, alternative treatment centers in New Hampshire face a two-pronged problem, Simon said. First, even though they must operate as nonprofit organizations under New Hampshire state law, they are treated as businesses under federal law, meaning they do not get the tax protections they would if they were recognized under Internal Revenue Code section 501(c)(3).

Second, even when they do attempt to act as for-profit businesses in the eyes of federal tax law, they are barred by Section 280E from deducting the same expenses available to other for-profit businesses. They are allowed to deduct the production costs to make cannabis products – known as the “cost of goods sold.” But they may not do the same for any expenses on the retail end, including for any personnel costs or facility upgrades.

“Now, we’re not even a nonprofit at the federal level and on top of that, we’re being penalized for the cannabis side of things by being taxed more than any other for-profit business that exists,” said Brandon Pollock, vice president of Temescal Wellness Inc, which operates dispensaries in Dover, Lebanon, and Keene.

The result is that alternative treatment centers are forced to set higher prices to account for the additional federal taxes, Pollock says.

The Biden administration’s planned move will not solve all of those tax headaches; it will not allow the ATCs to register as 501(c)(3)s, for instance. But it will remove the limitations set by Section 280E, allowing for them to use the tax deductions.

“That’ll allow ATCs and cannabis organizations across the country to have better access to funding as well as (to) reduce the tax burden, which will help sort of the financial side of the industry,” Pollock said. 

“It means that when we file our taxes next year, we’ll be able to pay less than the exorbitant amount that we normally have to pay,” said Simon.

It will also help researchers study cannabis in the U.S. Schedule I drugs are deemed by the U.S. government to have no medical purpose. As a Schedule III drug, that determination would not apply, and researchers would face fewer barriers under the Controlled Substances Act to accessing it and acquiring grants to study it. 

That could also help the alternative treatment centers, Pollock said. More research into the effects of cannabis would allow the organizations to design better products and dosages for different conditions, and it could convince more doctors to recommend therapeutic cannabis for their patients – a requirement to obtain a medical marijuana card in New Hampshire. 

Overall, while the federal reclassification may not have major practical effects on the cannabis landscape overall, it could have a symbolic impact, particularly as lawmakers debate legalization this year, Simon and Pollock say.

“I think the inevitability narrative, which has been a pretty strong narrative for a long time, has definitely received a major plot point, if not a climax, with this decision,” Simon said, referring to cannabis legalization efforts.

Cannabis proponents say they hope the administration’s move could pave the way for other federal policy shifts, including around banking rules. 

New Hampshire’s ATCs have access to a bank in Massachusetts to manage their finances, but many for-profit and nonprofit cannabis businesses in the country do not, and must use cash transactions. And relaxing banking restrictions around cannabis could also allow New Hampshire’s centers better access to loans and financing that might not be available, supporters say.

The U.S. Cannabis Council, a business group, applauded the expected change.

The move was based on U.S. Department of Health and Human Services research and would have myriad benefits for business, Executive Director Edward Conklin said in a written statement. 

The update would put marijuana on a path to full legalization and make it easier for state-legal businesses to run profitable operations, he said.

“Moving to Schedule III represents a tectonic shift in our nation’s drug laws. The US Cannabis Council is committed to ending federal cannabis prohibition, and we believe that reclassification is a necessary and critical step toward that goal,” he wrote. “In the coming days, we will submit comments to the DEA in support of the proposed rule.”

Jennifer Shutt contributed to this report.