What Rescheduling Medical Cannabis Means for Texans

In 2024, cannabis in Texas largely exists as a black market item, with a small portion being offered as a medical-grade product to the patients who qualify through the state’s Compassionate Use Program (CUP). In August of 2023, the U.S. Department of Health and Human Services (HHS) formally recommended to the U.S. Drug Enforcement Agency (DEA), to change the federal classification of cannabis from Schedule I to Schedule III. If accepted, this can mean significant changes to how medical cannabis is sold, who has access to it, and how it can be paid for. The upcoming changes can drastically change the landscape of the Texas medical cannabis market.

Rescheduling vs. Decriminalization vs. Descheduling of Cannabis

Cannabis industry has three likely paths forward and each path has a different set of people backing it - for slightly varying reasons. While the entire cannabis industry works towards moving the subject of cannabis into the mainstream, it is important to understand how each path differs and how a shift in either direction can affect the consumers and the businesses on both the state and federal level.

Rescheduling of Cannabis on Texas

Rescheduling of cannabis is the most anticipated and the most likely to happen event in the cannabis industry for 2024, as it would help businesses, consumers, and medical researchers alike. The review process is currently being expedited directly by the White House, after the HHS Secretary Xavier Becerra reported submitting the rescheduling recommendation to the DEA on August 30th, 2023.

The suggested rescheduling would move cannabis from a Schedule I substance, where it shares the lineup with such medically unaccepted drugs as Heroin, LSD, PCP, and Crack Cocaine, to a different level, where it is considered more accepted and can be prescribed.

In order to make a difference, rescheduling of cannabis has to move it from Schedule 1 to Schedule 3 or higher. If cannabis is rescheduled to Schedule 2 - it would still be considered a drug with a high potential for abuse, and would continue to remain an illegal substance with very limited access. Examples of the current controlled Schedule 2 drugs are: Vicodin, Demedrol, OxyContin, Fentanyl, Adderall, and Ritalin.

A move to a Schedule 3 or higher places cannabis in the category of prescribed drugs with low-to-moderate potential for physical and psychological dependence, such as Testosterone, Anabolic steroids, Ketamine, and Tylenol with less than 90 milligrams of codeine.

Here is an alphabetical listing of DEA’s Controlled Substances.

NOTE: Rescheduling of cannabis has overwhelming support among the medical community. You can find more information about the subject of rescheduling by visiting Americans for Safe Access, a non-profit organization with a mission of ensuring safe and legal access to cannabis for therapeutic use and research.

Decriminalization of Cannabis in Texas

Recreational use of cannabis in Texas is illegal. Decriminalization of cannabis is when the adopted policies on the local or state level reduce the penalties for possession and use of small quantities of cannabis. On 11 May 2023, the Texas House of Representatives passed a Bill HB 218, which lowered the penalty for possessing up to 1 oz. of cannabis to a Class C misdemeanor, with no jail time, and a fine of no more than $500.

In order to become law, Bill HB 218 must be voted on and approved by the Texas Senate’s Committee on State Affairs. The Texas Legislature convenes every other year, and since the decision was not reached during the 2023 session, the next possible round of discussions is now expected in 2025.

Urge your state legislators to support marijuana decriminalization

Descheduling Cannabis in Texas

Descheduling or legalization of cannabis is when it is no longer considered illegal to possess. Legalization of cannabis means that the Department of Health and Human Services and the Food and Drug Administration (FDA) agree that cannabis has no potential for abuse and that all legal restrictions can be lifted. Once cannabis is legalized, it works similar to tobacco and alcohol, where age is the only requirement that must be met in order to buy it.

With less than 30 U.S. states currently allowing recreational cannabis, legalization on a federal level is still a more distant possibility than rescheduling.

How Rescheduling Cannabis Affects Texas Patients

Rescheduling of cannabis to a Schedule 3 or higher helps the patients find more places where to buy it, introduces more variety of purchase options, and helps with ways to pay for filling the prescription.

Here are the top three effects on the cannabis patients once cannabis is rescheduled to Schedule 3 or higher:

• As a result of rescheduling, the medical market in each state will grow, creating more competition and lowering the prices.
• Insurers would be able to include cannabis on their lists of drugs that are covered by health insurance as a regular prescription
• Rescheduling would also allow purchasing medical cannabis using the HSA (Health Savings Accounts).

How Rescheduling Cannabis Affects The Medical Research

One of the most important aspects of rescheduling cannabis is opening it up for more medical research, to test its efficacy compared to opioids and other highly addictive medicines. While the substance is considered illegal, medical researchers must jump through a lot of hoops to get their hands on the product for testing. Once cannabis is rescheduled - expect an explosive growth in the medical testing.

How Rescheduling Cannabis Affects Texas Cannabis Businesses

Cannabis business owners are at the edge of their seats, awaiting the rescheduling as a way to save more money on taxes. With the rescheduling of medical cannabis to a Schedule III or higher, businesses that work with medical cannabis will no longer be subject to the cannabis tax (IRS Section: 280E), which can require the business to pay up to 70% taxes (compared with 30% for any other business).

IRS Section 280E disallows cannabis businesses to take ordinary business-related deductions that are normally allowed for a non-cannabis business. Only the Cost of Goods Sold (COGS) are deductible. Here is a list of typical items that a cannabis business currently cannot deduct under the Section 280E (while a non-cannabis typically can).

• Payroll for employees
• Payment to contractors
• Utilities
• Rent
• Maintenance costs
• Health insurance premiums

The removal of section 280E will help all legal cannabis businesses in Texas and across the U.S. to become more profitable, as less of the income will be wasted through taxation.

Rescheduling of cannabis can also bring a significant shift to the payment process, which has been complicated for all cannabis businesses for a long time. Up until now, cannabis businesses process payments either as cash, or in some states, they function as an ATM, which gives the client change from the withdrawn amount, after subtracting the cost of the purchase. If insurance companies decide to include cannabis as part of the policy’s drug formulary, that would allow cannabis businesses to bill insurance for the prescribed cannabis. If Health Savings Accounts become authorized to pay for medical cannabis - that adds yet another stream of non-cash payments to cannabis businesses.

Additional Cannabis Regulation Resources for Texas Residents

Learn more about how you can help the cannabis movement in Texas by visiting the following local and national organizations:

• Informed Texas - an educational cannabis non-profit
• Texans for Safe Access - a Texas medical cannabis non-profit
• Texas Cannabis Industry Association - a non-partisan association for Texas cannabis professionals
• Coalition of Texans with Disabilities - an organization working with state legislators and agencies to protect the rights of Texans with disabilities
• Cannabis Regulators Association - a national association of cannabis regulators from across the U.S.