US agency recommends reclassifying marijuana as less dangerous drug

WASHINGTON — The U.S. Drug Enforcement Administration is recommending cannabis be reclassified as less risky, people familiar with the matter said — a move that could help the legal marijuana industry benefit from tax breaks.

Several steps remain before marijuana can be taken off Schedule I, where it’s listed with the world’s most dangerous drugs like heroin, and put on Schedule III, which is for less risky drugs with a medical use, said the people, who asked not to be named because the information hasn’t yet been made public. This would ease access to cannabis for patients and researchers studying its medical applications without decriminalizing it. The production, distribution and possession of marijuana for recreational purposes would remain illegal under federal law.

The effort, which could still collapse, comes almost 30 years after California legalized medical marijuana. More than half the U.S. population is now able to buy pot under a state-by-state patchwork of voter-driven laws.

“This is historic because the federal government is finally acknowledging that it has misclassified one of the most popular drugs for many years,” said David Pozen, a professor at Columbia University’s Law School and the author of a recent book on drug policy, in a phone interview.

Shares of cannabis-related companies surged Tuesday, with Curaleaf Holdings Inc. rising 25% in US trading and Green Thumb Industries Inc. jumping 22%. Meanwhile, the MJ PurePlay 100 Index, which tracks 95 global stocks exposed to the cannabis industry, climbed 22%, its biggest one-day gain since October 2022.

A majority of Americans believe marijuana should be decriminalized for recreational or medical use, a policy that President Joe Biden said he would pursue while in office but that still lacks widespread support in Congress. Biden’s favorability has waned among key voting blocs that favor legalization, including young voters and Black Americans.

More than a year ago, Biden pardoned federal and D.C. marijuana offenses in an effort to resolve the irony that companies are now selling a product that people are still imprisoned for possessing — and with Black Americans representing a disproportionate percentage of those arrested. Pardons have been ongoing.

The process could be upended if Biden loses this year’s election to Donald Trump, whose campaign didn’t immediately respond to a request for comment. Republicans have generally opposed rescheduling or decriminalizing marijuana.

“We need to be reducing the number of people that use drugs and not increasing that number” Republican House Majority Leader Steve Scalise said in an interview. “We shouldn’t be making matters worse.”

The move comes as Congress weighs potential changes to open the door for lenders to more easily offer banking services to marijuana companies. While Democrats have eyed adding it to a Federal Aviation Administration reauthorization bill, Republican Senate Minority Leader Mitch McConnell remains opposed to it, according to a spokesman. Several other senior Senate Republicans cast doubt Tuesday on it being included, including Steve Daines of Montana, one of the bill’s sponsors.

The DEA’s move is unlikely to resolve ongoing debates over a drug that’s increasingly popular with young consumers. Cannabis companies, some of which are backed by alcohol and tobacco makers, have said joints, gummies and drinks with psychoactive THC should be able to be sold just like booze or cigarettes. This would mean “descheduling” the drug altogether.

The perception of cannabis by the public also remains a key issue. Weed is now viewed as healthier than booze by the “California sober” demographic, which has given up alcohol and other drugs but continues to use marijuana. It’s the most commonly used federally illegal drug in the US, according to the Centers for Disease Control and Prevention, and state-level legalizations have raised much-needed cash, bringing in around $3 billion in tax revenue, according to the non-profit Tax Foundation.

Yet spotty record-keeping has made it hard to judge the overall impact of more widespread use that’s come with legalization.

Cannabis companies lauded the news, though U.S. authorities have yet to officially weigh in on the matter.

Ben Kovler, the chief executive officer of Green Thumb, said the decision was long past due. “The official acknowledgment that cannabis has medical utility from a government agency further validates our mission and belief that cannabis has the power to improve well-being,” said Kovler, whose company operates in multiple U.S. states.

Morgan Paxhia, co-founder of Poseidon Investment Management, which invests in cannabis said that rescheduling “is likely to bring a vibrant return of investor interest that could quickly move the sector back to robust optimism.” Cannabis stocks have languished in recent years amid federal inaction.

“Moving to Schedule III represents a tectonic shift in our nation’s drug laws,” said the US Cannabis Council, a trade group for the industry, adding that the change would end the tax penalty called 280E that bars companies that deal in federally illegal substances from taking tax deductions. The new legal status should help cannabis businesses of all sizes, the group said, and make the regulated market better able to compete with the illegal market.

If marijuana is reclassified as Schedule III it will be treated like substances such as ketamine and anabolic steroids, which require prescriptions but aren’t federally prohibited.

A spokeswoman for the DEA declined to comment, and referred calls to the Department of Justice.