D.C. Download: How will reclassifying marijuana affect Nevada?

For years, advocates have called upon presidential administrations to reclassify marijuana or deschedule it entirely from the DEA’s list of controlled substances.

On Wednesday, the Biden administration took the furthest step towards legalizing weed since it was first criminalized, announcing it would reclassify marijuana from its current status as a Schedule I drug, on par with heroin and ecstasy, to Schedule III, which includes drugs such as ketamine and anabolic steroids that are allowed for medical use.

The move is both historic and a half step. Its greatest impact will likely be on the tax burden for cannabis businesses, which can now take tax write-offs not afforded to “illegal” businesses, and on the scientific community, which now has the proper authority to study its medicinal benefits at the federal level.

For Nevadans, nothing will be immediately different. The DEA decision comes after President Joe Biden ordered a review of the department’s marijuana policy in late 2022; the proposal must now undergo public comment and then ultimately rule finalization, which is expected to take months.

But if the rule goes through, Nevada’s burgeoning cannabis industry could see a significant financial barrier reduced.

The Nevada Angle

The biggest change reclassification would bring to Nevada would be the elimination of Section 280E burdens to the cannabis industry.

Section 280E is a segment of the tax code that prohibits companies from claiming standard business deductions and credits if they are engaged in activity that is considered illegal at the federal level, even if, like in Nevada, cannabis is legal in the state. That law can result in tax rates of more than 70 percent for marijuana businesses, creating a massive barrier to entry and earning a profit.

Clark County Commission Chairman Tick Segerblom, a longtime cannabis advocate who has the distinct honor of having toked on the White House roof, said the 280E burden has significantly handicapped the cannabis industry in Nevada.

“It’s just so hard to make money when you can't deduct your expenses,” he said in an interview.

Layke Martin, the executive director of the Nevada Cannabis Association, said there is still a long road between proposing a rule and finalizing it, including potential legal challenges. But she expects reclassification to eventually raise these businesses’ bottom lines.

“In the long term, hopefully, the elimination of this incredibly burdensome federal tax code application to state-licensed businesses will help the industry, which is currently struggling both in Nevada and nationwide,” Martin said in an interview.

Segerblom also said he hopes reclassification can bring Las Vegas one step closer to becoming the “Amsterdam of the West,” as he likes to dream of — smoking weed in Las Vegas’ iconic hotels and casinos.

On the Strip, the smell of marijuana outside can be as omnipresent as neon lights or blackjack tables, even though consumption outside a designated lounge or private residence is illegal. Segerblom believes reclassification — while not enough to push properties to host dispensaries or start selling joints — might convince hotels to start earmarking rooms for weed smokers the way that they do for people who want to smoke cigarettes in their hotel rooms.

“Hotels maybe can't sell yet, but there's no reason they couldn't have a room or multiple rooms where guests are allowed to go smoke,” he said, adding that he had already discussed the idea with hotel operators.

Martin said that as long as marijuana remains scheduled, even at a lower level, she does not expect cannabis and gaming will mix. And both Martin and Segerblom said congressional action is still needed on banking, so that cannabis companies can have access to traditional banks and financial tools and customers can use major credit cards at dispensaries.

A proposal to do just that is being considered in the Senate this year, with the support of both of Nevada’s senators.

But they agreed that the reclassification, while short of the ultimate goal of descheduling, is significant.

“We have millions of adults who are using cannabis to treat ailments, instead of other types of prescription drugs,” Martin said. “And so for the government to recognize that, finally, is a big step in the right direction.”

The Impact

The Biden administration and supportive Democrats hope that reclassification has electoral as well as practical impact. Several of Nevada’s Democratic delegation members praised the decision publicly.

Weed policy also has the distinction of appealing to younger voters — or so the Biden campaign hopes, particularly as polling shows these voters objecting to Biden’s handling of the Israel-Gaza war.

While we didn’t talk about the politics of it, Sen. Jacky Rosen (D-NV) told me in a brief interview that she was “pleased” with the Biden administration’s decision on the issue.

“Nevada has been successfully regulating cannabis since 2017,” she said. “It’s time federal regulations catch up. We’ve got a lot more work to do, but this is certainly a step in the right direction.”

— This story, including this latest D.C. Download, is used with permission of The Nevada Independent. Go here for updates to this and other Nevada Independent stories.