Cannabis Rescheduling: What You Need to Know

On Tuesday, the Drug Enforcement Administration (DEA) shared its recommendation to reschedule cannabis from Schedule I to Schedule III under the Controlled Substances Act (CSA). While this will have a significant impact on how cannabis can be researched to identify medical benefits, creating opportunities for pharmaceutical companies to get involved with the sale and distribution of medical marijuana in states where it is legal, there are also ramifications for banks and credit unions serving this industry.

We spoke with Zane Gilmer, a partner at Stinson LLC, to better understand the nuances and complexities of this shift.

Increased Regulatory Complexity

Rescheduling could set up a system that is more challenging than what we currently have because it could result in the medical market becoming federally recognized, leaving the adult-use market unaddressed. There is also the question of what kind of regulations would accompany rescheduling. While there’s been some chatter in industry circles about a “Cole 2 Memo,” there are still many unknowns about what the regulations would look like, and how they would impact financial institutions. As Zane put it, “rescheduling is only part of the story. The rest of the story is about the regulations that come with it."

Improved Profitability of Licensed Cannabis Operators

A clear benefit of rescheduling will be the removal of the tax code 280E, allowing licensed cannabis businesses to deduct ordinary and necessary business expenses on their federal tax returns. This will dramatically improve cash flow for cannabis operators, making them more profitable and attractive targets for financial institutions – not just for their increased deposit balances, but also for their enhanced creditworthiness. There are still other credit and BSA/AML risks to overcome, but this will improve the financial viability for many operators.

Could rescheduling be the first step toward other federal cannabis reforms, including for banking? That's hard to predict, but we do know that banks and credit unions serving this industry today are benefiting from the low-cost deposits, non-interest income, and earning assets offered by this line of business – all while passing their exams.

Free Webinar: Cannabis Lending & Rescheduling 

Registration is open for our webinar on May 7, 2024 at 3:00 pm ET featuring discussions with industry experts about cannabis lending and cannabis rescheduling. We’ll be joined by Scott Moskol, Co-Chair of the newly launched Cannabis Practice group at Blank Rome, and Kirsten Trusko, CEO and Co-Founder of the Emerging Markets Coalition (EMC), who will share their insights on these hot topics.

Register for the Cannabis Bankers' Quarterly Webinar on May 7

 See Pricing and Details

Shield's Market Leadership 

Shield recently announced organizational changes and promotions to strengthen its position in the cannabis market and better support its customers.

Since its inception, Shield has partnered with more than 65 financial institutions and monitored 10.9 million transactions including $46.1 billion in deposit volume. For the 12-month period ending March 31, 2024, Shield’s financial institution customers have earned $37.9 million in fee income. As of March 31, 2024, these financial institutions have $1.1 billion in deposit balances and $290 million in loans outstanding from over 6,046 cannabis-related businesses representing more than 19,472 active cannabis licenses. 

Shield on the Road 

We have a busy year planned and hope to see you at the various conferences and events at which we’ll be attending and speaking.

Meet us at these upcoming FinTech and Banking conferences 

Let Shield help your financial institution unlock the benefits of a cannabis banking program. Schedule a meeting with us today.