DEA Finally Acknowledges CBD’s Medicinal Value

by Brian S. Whalen, CPA September 28, 2018
Estimated Reading Time: 2 minutes

Open the flood gates!?

In a major development, on September 27th, 2018, the DEA lowered a lone CBD medicine (Epidiolex) from Schedule I to Schedule V and announced that drugs with THC content below 0.1% will be considered Schedule 5 drugs if they have been approved by the U.S. Food and Drug Administration (FDA).  This is a promising first step in the advancement of regulated CBD products, as it’s essentially the first time that the DEA has acknowledged CBD’s medicinal value.  Good luck getting them on board with THC.

To appreciate the rescheduling of Epidiolex, and ultimately future CBD medicines, you must have a relevant understanding of the DEA’s lingo regarding the word “Schedule”:

There are three inflection points in the Controlled Substances Act (CSA) that are of significance to the cannabis industry.

  1. Schedule I or II
  2. Schedule III, IV & V
  3. Not Scheduled

Currently, cannabis and any CBD products that are not FDA approved and not <0.1% THC are classified as Schedule I, the worst place to be on the 5 tiers.  Without going into the details of the CSA, this is “bad” because the Punitive tax laws of 280E only apply to Schedules I and II.  If the DEA were to determine that cannabis or CBD had less potential for abuse than narcotics like methadone, oxycodone, morphine, opium etc., and abuse of such products may lead to moderate or low physical dependence or high psychological dependence, then they could make it to Schedule III or better (IV, V) and 280E would no longer apply.  Drugs currently in Schedule III include Vicodin, Tylenol with Codeine, and Suboxone.  As any cannabis business owner knows, 280E is a profit margin killer and a pain in the rear to circumvent with the complex accounting required to get tax deductions only for the Cost of Goods Sold (COGS).  Many CBD businesses fail to realize that they are subject to 280E (until the IRS audit).

RELATED:  6 Priorities for Your Cannabis Business

To add insult to injury, alcohol and tobacco are Not Scheduled by the DEA.  Massive corporations are front-running the possibility that CBD joins the ranks of booze and cigs.  For instance, Coca-Cola, among other Fortune 500 companies eyeing the consumer demand for clean CBD, is considering a line of CBD beverages.  At least the DEA took a first step in the right direction with CBD.

It is a common corporate strategy to let the small guys be the guinea pigs until the rules and regulations are established, at which point the conglomerates come in and its “game over” for small CBD producers.  As the founder of Green Man Cannabis recently pointed out, “There is a difference between pioneers and settlers.  Pioneers got arrows and settlers got land”.

Stay tuned.

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