DEA approvals could bring big tax benefits for medical marijuana businesses

The U.S. Drug Enforcement Administration has for the first time issued registrations to medical marijuana dispensaries, a bureaucratic maneuver under President Donald Trump’s historic rescheduling of the drug that could pave the way for the businesses to receive tax benefits long denied the industry.

The agency issued the registrations Friday to more than 900 state-licensed dispensaries in Alabama, Florida, Mississippi, South Dakota, Texas, Virginia and West Virginia, the Justice Department said in a news release. The department did not immediately identify the approved businesses.

Attorney General Todd Blanche said in the statement that the regulated distribution of cannabis for medical use from those shops “will help ensure broader access to chronic pain treatment and the safety of the American people.”

In April, Blanche signed an order shifting the classification of state-licensed medical marijuana from Schedule I — reserved for drugs without medical use and with high potential for abuse, like heroin — to the less strictly regulated Schedule III.

The decision largely legitimized medical marijuana programs in the 40 states that have adopted them, and it set up an expedited system for state-licensed medical marijuana producers, manufacturers and distributors to register with the DEA. Businesses must undergo a pre-registration investigation and have security, recordkeeping, inventory controls and other safeguards governing the handling of controlled substances.

Registering with the agency is also expected to ensure immense tax benefits. Historically, state-licensed cannabis businesses haven’t been able to deduct normal business expenses — like advertising, rent or labor costs associated with sales — on their federal taxes because they were dealing with a federally illegal, Schedule I drug. Many in the industry have found that financially crippling.

Nearly 7,000 other cannabis dispensaries, manufacturers and distributors across the country have similarly applied for registration, according to a list published by the DEA on Friday.

Steph Sherer, the founder of the medical cannabis organization Americans for Safe Access, noted that the registrations were issued just days before the 30th anniversary of California becoming the first state to legalize the medical use of marijuana.

“For the first time, the federal government is recognizing and registering the medical cannabis dispensaries that patients fought to establish,” Sherer said in a written statement. “This is a tremendous victory for patient access and an opportunity to build on 30 years of progress.”

But questions abound. The way state-licensed medical marijuana businesses are regulated is vastly different from how most companies dealing with Schedule III drugs are overseen, and it remains unclear exactly what requirements the DEA may seek to impose on medical cannabis.

For example, some cannabis industry attorneys have noted, state regulators have often sought to mitigate the effects of the drug war by allowing people with some criminal history to run licensed marijuana businesses. It isn’t certain whether the DEA will adopt that approach with the businesses it registers.

Furthermore, many states have merged their recreational and medical marijuana industries. While the Trump administration has sought to reschedule marijuana more broadly, it remains unclear how the DEA will treat businesses that handle both adult-use and medical cannabis.

Two dozen states plus Washington, D.C., have authorized adult recreational use of marijuana, 40 have medical marijuana systems, and eight others allow low-THC cannabis or CBD oil for medical use. Only Idaho and Kansas ban marijuana outright.

“It’s obviously a positive step to see the program taking shape,” said Chris Lindsey, vice president of policy and state advocacy at the American Trade Association for Cannabis and Hemp. “What everybody’s watching for is, what can we expect to see now that we have companies that are going to be operating in this class? What are they going to have to start to do?”

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Johnson reported from Seattle. Associated Press writer Jennifer Peltz in New York contributed.