The Washington State Liquor and Cannabis Board (LCB) published an interesting bulletin this Tuesday, June 16th. The bulletin finds that DEA’s final rule on medical marijuana rescheduling “does not appear to apply to Washington’s cannabis licensees, due to the statutory framework predominantly regulating recreational cannabis.”
The word “predominantly” is doing a lot of work in that sentence; and LCB qualified its findings, stating: “this may not be our final interpretation as information is evolving and the determination may not rest with the state.” That’s fair enough—I tend to agree with the final clause.
Washington may be the first state to publish an opinion of sorts on how rescheduling may affect its licensees. It’s a very important issue, which we began tracking prior to April 28th, when DEA’s final rule took effect. As a refresher, the final rule orders that 1) state-legal, medical marijuana, and 2) FDA-approved marijuana drugs, both be moved from schedule I to schedule III of the federal Controlled Substances Act.
Whether rescheduling applies to businesses in states that operate through a unified, recreational and medical marijuana market, and make both adult-use and medical marijuana sales, is a crucial question. In most (all?) states with adult use cannabis programs, medical cannabis regulation and sales have been absorbed into the adult use regime.
If—and it’s a big if—the final rule survives litigation, operators who are entitled to leverage medical marijuana’s schedule III status will have significant advantages. These advantages include potential export rights and certain income tax relief, to start.
In a blog post titled “Marijuana and Income Tax”, published April 27th, I hashed out the issue addressed in the bulletin:
In states with adult-use programs, the analysis could be complex. All states with adult-use marijuana programs also have medical marijuana programs. Most of these states have blended their programs to varying degrees. In some states, a plant may begin in adult-use CTS, grown by a non-medical licensee, but evolve into a medical marijuana item somewhere along the supply chain. The resulting product may or may not be more potent, will likely be packaged differently, and may or may not be taxed. Invariably, though, it is transferred or sold to a medical marijuana cardholder. It has undergone a definitional transformation, if not a physical one.
The licensees in these mixed supply chains may be adult-use licensees, with “endorsements” or “registrations” or other permissions to create or handle medical marijuana products. At the grow level, the distinction is virtually meaningless—a marijuana plant is just a marijuana plant, after all. But, are these hybrid operators “state licensees” within the meaning of the Order? They handle medical marijuana, but they also traffic in non-medical marijuana. They may or may not segregate inputs; they may or may not segregate outputs. You can see where I’m going with this.
Washington certainly saw where I (or probably this) was going, and published its bulletin. Before doing so, LCB advises that it spoke with “state agency partners as well as other states via the Cannabis Regulators Association (CANNRA) and the National Governors Association.” Assuming the LCB’s interlocutors came down with a similar analysis to the bulletin, there may be something of a consensus forming here.
If the final rule holds, and the LCB analysis is correct, we may see more states follow in the path of California, another unified market which has undertaken reforms to help its licensees take advantage of the final rule. It is likely that CANNRA and others are also working on this issue, although the topic was not squarely addressed in CANNRA’s April 27 overview of the final order.
We’ll continue to update on state action in response to the final rule, along with relevant litigation and other federal developments. Stay tuned! In the meantime, check out the following, related posts:
- The Motion to Stay DEA’s Schedule III Rule: Strong Enough to Stick?
- Standing Is Everything: Three States Join the Medical Marijuana Rescheduling Fight
- Medical Marijuana Rescheduling Q&A: Cutting Through the Noise
- A Calculated Bet: DEA Registration is Open, and the Clock is Ticking
- Marijuana Rescheduling and Income Tax
- The U.S. Opens Its Medical Marijuana Market to Global Trade (For Now); Broader Marijuana Rescheduling on Deck
The post Would Cannabis Rescheduling Help Businesses in Unified Markets? Washington Weighs In appeared first on Harris Sliwoski LLP.
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