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Serving Northern St. Louis County, Minnesota

Federal changes could have big impact on state cannabis industry

David Colburn
Posted 6/13/24

REGIONAL- To borrow an old saying, the feds may giveth, and the feds may taketh away with regards to the nascent cannabis and hemp industry in Minnesota. A change in the classification of marijuana …

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Federal changes could have big impact on state cannabis industry


REGIONAL- To borrow an old saying, the feds may giveth, and the feds may taketh away with regards to the nascent cannabis and hemp industry in Minnesota. A change in the classification of marijuana could be a boon for business while a proposed change in the farm bill could be a huge bust for sellers of hemp-based edibles.
Marijuana reclassification
The Federal Comprehensive Drug Abuse Prevention and Control Act of 1970 established five categories, called schedules, for classifying controlled substances and medications based on their proper medical use and potential for misuse or abuse.
For decades, marijuana has been classified as a Schedule 1 substance, having “high abuse potential with no accepted medical use,” and as such “may not be prescribed, dispensed, or administered.” This put marijuana in the same class as heroin, LSD, mescaline, Ecstasy, and psilocybin.
But with the growth of state-sponsored medical cannabis programs now in 38 U.S. states and with nearly half of the states in the country having some form of legalized recreational marijuana, the Biden administration has proposed changing with the times. In April, the U.S. Department of Justice and Drug Enforcement Administration proposed moving marijuana from Schedule I to Schedule III, a shift that would not legalize recreational marijuana at the federal level but would still represent a paradigm shift in the way marijuana is treated.
Reclassifying marijuana as a Schedule III substance has implications for both research and business practices.
Researchers will have fewer restrictive regulations to contend with as they seek to study the benefits and risks of cannabis. Schedule III substances don’t require a federal license to study as do Schedule I drugs, opening the field to a wider array of potential researchers and possibly enhancing the quality of the research.
For state-regulated cannabis businesses, rescheduling will remove the prohibition against writing off standard business expenses on their federal tax returns, saving millions of dollars that businesses can use to reinvest in their businesses or use to boost employee pay.
The shift may eventually make it easier for cannabis-related businesses to obtain financing from banks, which have been leery of them because marijuana has remained illegal at the federal level. Reclassifying marijuana doesn’t change that, but the change signals a process of reform that will likely lead to less legal risk from handling financial transactions of state-regulated marijuana companies. The tax breaks will also make companies more profitable, making them more attractive as borrowers. However, for the time being, numerous major banks have indicated they have no plans to change their policies regarding cannabis businesses.
That includes being able to use major credit cards for transactions in an industry that has had to rely almost solely on cash transactions, something that has made cannabis businesses heightened targets for crime. Some stores have gotten around that by installing systems that create a “virtual wallet” for customer credit card transactions that carry extra fees that are not visible to the banks that deal with the credit card companies, but such arrangements are surely the exception rather than the rule.
Edibles fight
Meanwhile, Minnesota’s 2,600+ registered sellers of edible hemp products infused with THC could theoretically be put out of business by language in the federal farm bill that would criminalize the manufacture of artificially-produced cannabinoid products.
Consumers might look at recreational marijuana and hemp-based edibles and related products as being two peas of the same pod, but that’s not the view of industry insiders looking to grab the biggest share of the profit pie.
The U.S. Cannabis Council (USCC), representing major marijuana companies, is backing the provision that would redefine legal hemp to include only “naturally occurring, naturally derived and non-intoxicating cannabinoids.” That would criminalize the production of hemp-based gummies, beverages, oils, soaps, and other products.
The USCC contends that the move is a consumer safety issue, arguing that hemp-related products are not tested or regulated sufficiently and that they lack proper labeling and are available without age restrictions in some locales (Minnesota has specific product labeling requirements and restricts the sale of cannabinoid edibles to those 21 and older).
Advocating on the other side of the issue is the Midwest Hemp Council, which has argued that criminalizing hemp-based products would push consumers into illicit, underground markets where age and safety is of no concern and disenfranchise the increasing number of hemp farmers who have risen up to meet the increasing demand.
Given that the recreational marijuana industry has flourished in a landscape where their product is illegal at the federal level, the real impact of criminalizing hemp-based products is certainly up for debate. It could be that business would continue as it has since THC-infused edibles were approved for sale in 2023, or products and sales could be significantly curtailed. As with marijuana, the federal government’s approach to enforcing such a change could have a significant impact on state-registered hemp-based product sellers.
Consultant Leili Fatehi of Blunt Strategies believes the amendment would have minimal impact on Minnesota due to state protections, though interstate exports might be affected. Midwest Hemp Council’s Justin Swanson counters that the farm bill provision aims to dismantle the hemp industry and could prevent businesses from writing off expenses due to federal illegality.
The provision in question is found in the U.S. House version of the farm bill and given the highly partisan atmosphere in Washington D.C. and huge differences in the Senate version, it’s virtually impossible to tell at this point if or when a farm bill approved by both houses of Congress might pass, and if the final form will include the hemp-based products provision. As has been the case since Minnesota ventured into the realm of THC-infused edibles and recreational marijuana, uncertainty seems to be the prevailing catchword.