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Far more is needed than merely reclassifying marijuana

Things will still be decidedly rigged against the industry on the federal level.
Michael Schaus
Michael Schaus

The Drug Enforcement Administration (DEA)’s plan to move cannabis from Schedule I of the Controlled Substances Act to Schedule III is a welcome piece of news for the industry — even if it falls far short of what is actually needed. 

The rescheduling of marijuana will have a real financial impact for those operating legally within the industry — allowing operators a tax structure more suitable for legitimate and legal operations. Under Section 280E of the Internal Revenue Code, anyone who “traffics” in Schedule I or II drugs is prohibited from claiming deductions or credits related to their business operations, meaning retailers have had to pay an effective tax rate as high as 70 percent because of where their product lands on the DEA’s list of controlled substances. 

Not only is such a massive tax burden devastating to the profitability of businesses, but it makes it virtually impossible for legal operators to compete with illegal dealers in regard to price. After all, it’s doubtful that many illegal drug dealers are fully disclosing their illicit income on a form 1040 each year. 

The DEA’s plan to reschedule cannabis, however, will change that to some degree — allowing those who operate legally on the state level to begin claiming deductions for things like retail space, office equipment and other ordinary business expenses. That change alone will give the legal market a bit more financial breathing room to edge out the illegal dealers operating in the shadows.  

Certainly, this is great news, but it is by no means a massive green light for the industry to join the broader economy of legal and legitimate businesses. In fact, despite moving cannabis into the same category as certain prescription drugs, it still won’t even automatically allow for medicinal uses of the plant. To become legal as a medical product, it would still have to navigate a complex web of regulatory hurdles from the Food and Drug Administration — and even then, only narrow products and uses would potentially be approved. 

And that’s to say nothing of the fact that recreational marijuana use will remain prohibited even after the rescheduling — meaning virtually all of Nevada’s dispensaries will continue to be considered criminal enterprises by federal authorities. 

In other words, things will still be decidedly rigged against the industry on the federal level. Banks will still resist working with operators, casinos will maintain official prohibitions on the use of marijuana products and dispensaries will continue to be susceptible to harassment, abuse and targeting by prohibitionist officials on the local and federal level

Given the plethora of ways the system is rigged against the industry, it’s actually pretty amazing it has survived at all over the last several years  — especially considering the way local rules, regulations and tax structures haven’t always been terribly well crafted for entrepreneurial success. When the City of Las Vegas approved cannabis lounges last year, for example, it included a slew of arbitrary restrictions, limitations and distance requirements on would-be operators that effectively quashed the idea of a vibrant “Little Amsterdam” marijuana district in downtown. 

Luckily, the county has been more accommodating — and plenty of hard-nosed individuals have fought tooth and nail to keep moving their plans forward. 

What’s really needed for the industry to reach its full potential, however, is a federal decriminalization effort that stops treating cannabis entrepreneurs as criminals operating in some murky gray area of legality. Unfortunately, not all federal legalization efforts are created equal. The devil is often in the details, with lawmakers pushing bills that include massive new federal taxes, exceptional regulatory burdens and heavy-handed federal oversight.  

However, despite all this, there’s good news for those who operate legal cannabis businesses here in Nevada: The industry has proven itself to be home to some deeply dedicated entrepreneurs, despite all the legal and regulatory headwinds

Nevada now has two consumption lounges open for business, with 38 others working their way through the approval process — and the potential these companies have to forge a new path for the industry is virtually limitless. From unique atmospheres to a seemingly infinite range of potential product offerings, the emergence of consumption lounges in Nevada’s market represents an opportunity for the industry to flex its creative muscles, regardless of how the DEA decides to treat its products.  

And what better place for such experimentation and growth than “America’s playground?” After all, Southern Nevada is already home to some of the best recreational environments in the world — offering would-be venues a seemingly endless supply of fresh customers eager to test the offerings of a market that is still in its infancy. 

Moreover, there’s a cultural tendency in this state to do things bigger, better and more outlandish than anywhere else. (Where else would someone propose building a guitar-shaped hotel, a replica of the Eiffel Tower or a giant LED Sphere?)

As a result, entrepreneurs here in Nevada enjoy a cultural freedom to stake out their own unique take on what cannabis “hospitality” will look like in a state that has already mastered the art of creating unique experiences for the masses. 

What better backdrop than the Las Vegas Strip for an industry looking to establish its own niche of the “entertainment” economy? 

Sure, the reclassification of cannabis from a Schedule I to a Schedule III substance will offer a little financial breathing room on future tax returns, but it falls far short of what the industry needs to truly thrive. Marijuana entrepreneurs deserve the freedom to operate as full and legitimate members of our economy — and that’s going to require something more than merely rearranging where their product is placed on the DEA’s list of controlled substances. 

Michael Schaus is a communications and branding expert based in Las Vegas, Nevada, and founder of Schaus Creative LLC — an agency dedicated to helping organizations, businesses and activists tell their story and motivate change. He has more than a decade of experience in public affairs commentary, having worked as a news director, columnist, political humorist, and most recently as the director of communications for a public policy think tank. Follow him at or on Twitter at @schausmichael.


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