Michigan cannabis shops could make more money when weed is reclassified

• The federal Drug Enforcement Administration plans to reclassify marijuana as a less dangerous drug 
• Under the proposal, marijuana would move from a Schedule I drug — in the same class as heroin and LSD — to Schedule III
• The move could make it easier for businesses to obtain loans and boost profits 

Michigan marijuana shops could pocket more money as the U.S. Drug Enforcement Administration moves to reclassify marijuana as a less-dangerous drug. The change could exempt cannabis retailers from tax restrictions that eat into their profits.  

U.S. Attorney General Merrick Garland proposed Tuesday that marijuana be reclassified from Schedule I, a category that includes drugs like heroin, LSD and ecstasy, to Schedule III, the Associated Press reported. Schedule III drugs include ketamine, anabolic steroids and testosterone.

The DEA defines Schedule I drugs as those with no accepted medical use and a high potential for abuse. It defines Schedule III drugs as having little to no potential for physical and psychological abuse.

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“Next, Congress needs to act to remove marijuana from the list of controlled substances altogether and create a federal regulatory framework that's more comparable to alcohol,” Aaron Smith, executive director of the National Cannabis Industry Association, told Bridge.

The DOJ’s recommendation is based on “the mountain of evidence that there is medical value to cannabis.” Smith said. “It might mean that more banks decide to take the risk of banking with cannabis (businesses) but it doesn't change the banking regulations.” 

Although recreational use of marijuana is legal in Michigan, cannabis has not been legalized federally. Under Internal Revenue Code Section 280E, those who sell Schedule I and Schedule II controlled substances don’t qualify for deductions or tax credits. This tax code has a significant impact on the revenue of cannabis business owners.

“The biggest impact will be the removal of the 280E tax liability that our members currently face,” said Robin Schneider, executive director of the Michigan Cannabis Industry Association. “Some cannabis businesses are paying as much as 81 percent of their revenue in federal tax.” 

Because cannabis is considered a Schedule I drug, business owners can’t write off regular business costs as they would be able to in other businesses, Schneider added. 

Banks are also reluctant to work with those in the cannabis industry because marijuana is still illegal federally, making it harder for business owners to open bank accounts or apply for business loans. Banking fees for cannabis business owners also tend to be higher than for business owners in other industries. 

Potential impact on hiring

“Reclassifying marijuana will essentially eliminate the tax code 280E which, from my standpoint, has made it very, very difficult to make money,” said Al Williams, owner of DaCut, a recreational marijuana dispensary in Detroit. 

“If we were able to eliminate the 280E, which reduces the amount of money that I have to pay in taxes every single year, that will open up funds or dollars for me to be able to do other things,” he said.  

Williams employs over 100 people at his two dispensaries in Detroit and Flint and a processing center in Flint. He said if marijuana was reclassified, he would be able to train and hire more employees and security.

 “As a dispensary owner, I want to be able to advertise more. As a dispensary owner, I want to be able to do more community events.  As a dispensary owner, I want to support my neighborhood more, which in turn will be beneficial to our business as well,” Williams said. 

The SAFER Banking Act, introduced by U.S. Sen. Jeff Merkley, D-Oregon, if passed, would allow cannabis businesses to access various financial and banking services like business loans or lines of credit. 

Not only are financial institutions reluctant to bank with business owners in the cannabis industry but some cannabis shops may not be able to offer traditional retirement plans to their employees.

“I think it hinders their upward mobility in life … that they don't have that ability to have a job that gives the same kind of benefits that any other job does,” Williams said.  

“If they could have a 401(k) along with doing something that they love, I think they'll be so much better people,” he said.  

The change wouldn’t be immediate. The Office of Management and Budget would need to review the proposal, the DEA would need to take public comments, then the proposal would have to go to an administrative law judge, AP reports. After that, the agency would make a final ruling.