WA dispensaries celebrate federal reclassification of medical marijuana

Through her 15 years in the cannabis industry, Maryam Mirnateghi has watched the sector hit highs and lows. Right now, she said, it's in a funk.

We've seen some businesses have to close up shop," said Mirnateghi, founder and CEO of cannabis store Canna West Seattle. "We see a lot of businesses that are really struggling right now, that just really aren't profitable."

On Thursday, the federal rescheduling of medical marijuana offered a silver lining for the industry.

"It's a big step forward," Mirnateghi said. "It's just a showing that the federal government is willing to start looking at cannabis more seriously."

President Donald Trump's administration ordered both state-regulated and Food and Drug Administration-approved medical marijuana to be reclassified into Schedule III of the Controlled Substances Act - a tier of drugs with only "moderate to low potential" for dependence - moving it from its previous place in Schedule I, which is made up of substances considered to have no medical use.

In Washington, owners of cannabis businesses are excited to see the breakthrough, which expands research, eases some tax implications and takes a step to normalize the substance. It also signals movement on a long-stalled issue, they say.

However, some confusion remains over how the policy change will be implemented in the near future - and what this means for those in the recreational cannabis industry.

The Washington State Liquor and Cannabis Board didn't immediately respond to a request for comment on the impacts of the federal marijuana reclassification on the state.

Operating 'like normal businesses'

Washington has long been considered a pioneer in the marijuana industry.

The state legalized cannabis for medical use in 1998, with recreational cannabis permitted in 2012, per the Washington State Liquor and Cannabis Board.

Today, the majority of states have greenlit medical marijuana, and about half have okayed recreational weed.

Trump took steps to ease hurdles around medical cannabis in December, with an executive order to boost related research and move the substance into Schedule III.

That month, the Washington CannaBusiness Association, which represents the state's cannabis and hemp businesses, praised the progress.

"There has been more than a decade of inaction by the federal government to acknowledge the failures of prohibition, the role of a responsible, legal marketplace and the demand of state voters across the country to take a new approach on cannabis," executive director Vicki Christophersen said in a statement at the time.

The trade association declined to immediately comment for the story Thursday.

A spokesperson said the group is "still reviewing this announcement to see what, if any, immediate implications it would have for the regulated marketplace here in Washington."

Medical cannabis now joins the ranks of substances such as ketamine and testosterone, leaving behind its former cohort of drugs with higher abuse rates like heroin.

Thursday's federal directive authorizes further research about medical cannabis.

"This rescheduling action allows for research on the safety and efficacy of this substance, ultimately providing patients with better care and doctors with more reliable information," said acting U.S. Attorney General Todd Blanche in a news release.

Lo Friesen, founder and CEO of Seattle cannabis processor Heylo, cheered on the move - particularly its tax implications.

A tax provision in the Internal Revenue Code bans businesses from taking deductions and credits if they're dealing in Schedule I and II drugs.

"As cannabis companies, we cannot deduct any expenses," Friesen said Thursday. "We could be losing money at the end of the year but still owe taxes because we cannot deduct our expenses."

The rescheduling should loosen the tax burden on medical cannabis businesses.

"We could now operate like normal businesses from a tax perspective," Friesen said, "and be able to dramatically improve our profit margins."

For now, she's eager to call her tax lawyer as soon as possible.

Questions remain

The cannabis industry isn't the same force that it once was, and producers, processors and retailers are all facing hurdles.

The rescheduling comes at a crucial time for the industry.

Mirnateghi, at Canna West Seattle, pointed to factors like market oversaturation and competition across state lines that have prompted higher operating expenses and lower sales revenue. She said business margins as "very, very thin."

"In the last few years, it's been a little challenging in the industry," she said. "People really assume that cannabis businesses are just printing money and making money hand over fist, and we just really aren't."

Mirnateghi launched her first medical cannabis dispensary in 2011 and founded Canna West Seattle five years later.

Questions remain about how the policy change will impact her day-to-day operations.

"As far as how it's going to affect our business, today, probably not a whole lot," Mirnateghi said. "It's a little unclear."

Thursday's policy shift doesn't change the ban on using credit cards at dispensaries. Financial institutions are regulated by the federal government, so, as long as marijuana remains illegal, their hands are largely tied.

However, the rescheduling from Schedule I to Schedule III does open up the conversation for processors because medical marijuana now holds less risk than it once did.

More to do for the industry

The cannabis industry believes there's still more to be done.

Recreational marijuana businesses are left out of the policy shift, which only targets medical cannabis.

"This particular move only really affects what they're calling medical cannabis, so it's hard to know, with regard to recreational stores, what that really means," Mirnateghi said. "It's going to be interesting to see how that really unfolds, as far as taxing and regulations go."

She anticipates that each state will handle those issues differently. It has yet to be determined how those governments and federal officials will approach the regulatory and financial aspects.

The Drug Enforcement Administration will hold a hearing on the proposed broader rescheduling of marijuana to Schedule III, starting June 29.

"It's disappointing to see recreational businesses not be able to take part in this," said Truman Bradley, the CEO of Crativ Packaging, which makes child-resistant containers for the cannabis industry in Washington and other North American markets.

He also serves as the vice president of strategy for GreenLists, a marketplace for wholesale cannabis products. Both companies are based in Denver.

For many in the industry, Bradley said the ultimate goal is descheduling, which take marijuana out of the Controlled Substances Act. For example, alcohol is not considered a controlled substance.

"A lot of true believers express frustration when they don't see what they wanted to have happen, which is full descheduling," Bradley said, but "it's almost never the case that you get all the way where you want to be in one move."

Despite the to-do list items that remain, Bradley insists Thursday's rescheduling is worth celebrating.

"Today is a win," he said. "There's no other way to say it.

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