The Trump administration’s move to reclassify marijuana as a lower-risk drug could provide major tax benefits to medical marijuana businesses, but for now, it leaves Vermont regulators charting a future that’s clear as mud.
Acting U.S. Attorney General Todd Blanche signed an order Thursday that shifts medical marijuana out of the most federally restrictive class of drugs — Schedule I, which includes LSD and synthetic opioids — into the less restrictive Schedule III. Further reclassification may soon follow.
The move has created a nationwide buzz about how the drug’s reclassification could make it easier to buy and sell marijuana and open up medical research.
Rescheduling the drug gives licensed medical marijuana businesses major federal tax breaks and makes it clear to researchers they can use cannabis products in their work. “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,” Blanche said in a statement.
Vermont legalized medical cannabis in 2004 and later legalized recreational use of the drug in 2018. Now 78 towns have at least one dispensary, and last year cannabis sales in Vermont generated more than $150 million in revenue, according to Seven Days.
The reclassification could provide significant tax benefits to medical retailers in Vermont and “turbocharge” the state’s medical cannabis industry, according to Gabe Gilman, general counsel for the Vermont Cannabis Control Board. But the medical and recreational cannabis industries in Vermont are tangled together, which makes it difficult for regulators and businesses to understand the industries’ future in the state.
“I think the board is excited to see needed rescheduling but also trying to serve businesses that encounter just an absolutely unprecedented amount of ambiguity,” Gilman said.
After the reclassification, medical cannabis retailers could deduct their business expenses from their federal taxes for the first time, Gilman said. The change could result in major financial savings for businesses.
Joseph Verga, who owns Green Leaf Central dispensary in Burlington, has a state endorsement to sell medical along with recreational cannabis products. Verga called the reclassification, and the tax change, “a huge win” for his business.
The dispensary in the heart of the Queen City is getting by but struggling to bring in profit amid Burlington’s competitive market, Verga said.
With a boost from the tax change, “I’d hire more people, I would stay open later,” Verga said.
Verga said that while he hopes he gets a windfall from tax changes, he remains skeptical about the laws and regulations Vermont will have to figure out before businesses actually see the benefits.
“I’ll believe it when I see it,” Verga said.
Marijuana has been a Schedule I drug since 1970, sitting among drugs that are considered to have no accepted medical use and a high potential for abuse. Schedule III drugs are recognized as having medical applications and face fewer regulatory restrictions.
Because marijuana is federally illegal, Vermont — like many states — created its own legal and regulatory framework to support an in-state cannabis market. But Thursday’s federal order currently offers no guidance to states on how to make changes to their individual programs and regulations, Gilman said, which leaves Vermont regulators unsure of how to move forward.
Before Vermont legalized recreational marijuana, people with a qualifying condition diagnosed by a health care provider could buy cannabis from a medical dispensary.
But when Vermont created a recreational cannabis market, the medical industry began to drop off, Gilman said.
In response to the decline in the medical market, the state started a program last fall that allowed recreational dispensaries to receive medical endorsements, Gilman said. Those endorsements allowed retailers to sell to people on the state’s medical cannabis registry.
Since endorsing dispensaries, the state has seen more people using the medical cannabis market, Gilman said. But the change also made the state’s medical and recreational markets more interconnected, he said, creating a conundrum for regulators trying to understand how the federal reclassification of cannabis affects Vermont.
It’s unclear how state regulators or the Internal Revenue Service will define what qualifies as a medical cannabis business eligible for tax benefits, Gilman said. But tax implications from the federal reclassification will have a major financial impact one way or another, which could boost the state’s medical cannabis industry.
“There’s just going to be this huge incentive for everybody to try to look medical,” he said.
