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Colorado's governor doesn't want to see the DEA get in the way of marijuana banking and tax reform.
By Thomas Mitchell September 6, 2023
Six days after the U.S. Department of Health and Human Services recommended that marijuana be lowered from a Schedule I federal substance to Schedule III, Governor Jared Polis sent a letter to President Joe Biden offering economic advice and a clear message.
"It’s about time," Polis told the president on Tuesday, September 5, before going on to praise the Biden administration and lobby the federal government for more marijuana reform.
The announcement from HHS came almost a year after Biden announced that his administration would review the plant's Schedule I status and pardon low-level federal cannabis offenders. If approved by the Drug Enforcement Administration, a Schedule III label for marijuana would clear research pathways and allow business owners to apply for tax exemptions, according to business and policy experts.
"This is an historic moment and we owe you and your administration a debt of gratitude for your leadership on catching up with where the science is. ... I ask you to simultaneously consider a few next steps in the near future by showing your support for access to banking for the state-regulated marketplace, reduced criminal penalties for possession and distribution of cannabis, addressing immigration-related consequences and enforcement discretion from FDA," the governor's letter continues.
In the week following the HHS recommendation, cannabis business leaders, activists and government officials have reacted to this potential shift in American marijuana policy with everything from cautious optimism to calls for more aggressive actions.
If the DEA agrees with the HHS recommendation, marijuana would be recognized by the federal government as having medicinal value, and would be on the same legal level as anabolic steroids and ketamine — but that is a very big if, as the DEA has blocked and stalled marijuana research and criminal reform efforts in the past. In his letter to Biden, however, Polis seems confident that rescheduling is going to happen, pointing to public support for federal legalization and billions of dollars in tax revenue collected by states that have legalized recreational pot sales.
In Colorado, growers have to pay a 15 percent excise tax on their harvests, while dispensary sales taxes typically range between 20 and 30 percent, depending on the town or county.
"Your administration will soon be credited with saving hundreds of thousands of jobs and significant tax revenue for the states when the DEA solidifies [the] recommendation," Polis writes. "While federal prohibition continues, more than three-fourths of the states have legalized medicinal marijuana, and more than twenty have legalized marijuana for adult use."
International drug treaties shouldn't be a problem, Polis adds, since the United States has technically broken them already by allowing states to legalize the plant.
Rescheduling alone would likely have minimal direct impact on criminal justice reform, as it doesn't end prohibition or change laws in states that criminally penalize marijuana. More reform efforts from the Biden administration would not only help bring justice to those who've suffered from the drug war, but "would go a long way toward bringing young people to the polls in 2024," according to Polis.
In the meantime, Colorado's governor views fewer tax burdens on the legal market as a strong first step.
Because of an Internal Revenue Service code banning tax exemptions connected to Schedule I status, marijuana businesses can pay upwards of a 70 percent tax rate on earnings. If marijuana is moved to Schedule III, Polis's advisers and the majority of the marijuana industry believe that the IRS tax code in question, 280E, will no longer apply to state-legal pot businesses. Upon rescheduling, banks and financial institutions, largely scared away from the industry because of the plant's Schedule I status, would be able to serve marijuana and marijuana-adjacent businesses, as well.
"The most efficient way to address these public health risks is to displace the illicit marketplace and replace it with a legal, safe, regulated, and age-verified system. But we can only do that by promoting federal policies that allow for profitability in these well-established state-regulated marketplaces. That equates to IRC Section 280E reform and access to traditional banking services," Polis writes.
Colorado's marijuana industry has been suffering through a downturn of flower prices and dispensary sales since the second half of 2021. While marijuana banking reform proposals have made it through the U.S. House of Representatives several times over the past three years, they've hit a wall in the Senate. News of possible rescheduling created a small wave of excitement last week, but that only carries the industry so long before action is needed, Polis warns.
"Let’s celebrate this progress and work together to finish the job," his letter to Biden concludes. "We greatly appreciate your leadership, and please come visit Colorado again soon."
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