Growing Like a Weed: Marijuana Policy in 2018

Legalized marijuana use - both medical and recreational - has been a topic of conversation and heated debate for years. With several states poised to add ballot initiatives in 2018 (as if 2018 could get more exciting!) and others offering promising legislative action (I’m looking at you, New Jersey), there are some interesting policy issues in play. Check out three big ones below.

• Medical MJ Insurance Coverage

Unless you use medical marijuana to treat an ailment, you’ve probably never stopped to think about the challenges of insurance coverage for the federally prohibited (more on that below) drug. Considering that it has been legalized for medical use in over half the country and established as a potential opioid alternative (even showing a short-term impact on opioid-related deaths), there are legitimate arguments for treating marijuana as medicine for purposes of health insurance.  

Groups such as Americans for Safe Access focus on bringing the issue of marijuana as a medically-recognized drug to the forefront of conversation, and that includes ensuring that medical treatments with the drug are covered by health insurance. Other groups, like the National Organization for the Reform of Marijuana Laws (NORML), that advocate for all types of legalized marijuana and the decriminalization of the drug, highlight the importance of its medical use. Even the Medicare website has an FAQ on whether medical marijuana is covered by Medicare (spoiler alert: it’s not), citing the drug’s place on the Drug Enforcement Administration (DEA)’s Schedule I as why it cannot be covered.  

• Marijuana as a Schedule I Drug

Let’s discuss how marijuana became a Schedule I Drug - and break down what that means. Marijuana was originally recognized as having medical benefits, such as the treatment of nausea and vomiting. It was later declared illegal under the Marihuana Tax Act of 1937, which was “at least partly motivated by Mexican immigration to the U.S. around the time of the Mexican Revolution”, according to Eric Schlosser, author of Reefer Madness, named for the 1936 anti-marijuana propaganda film that came before the law. In a 1994 article for The Atlantic, Schlosser wrote “Police officers in Texas claimed that marijuana incited violent crimes, aroused a ‘lust for blood,’ and gave its users ‘superhuman strength.’ Rumors spread that Mexicans were distributing this ‘killer weed’ to unsuspecting American schoolchildren.”

The 1937 Act was declared unconstitutional and was replaced by the Controlled Substances Act in the 1970s. At this time, marijuana was placed on Schedule I - where it still lives today. (Note: there’s an entire Nixon rabbit hole called the Shafer Commission to dive into if you’re interested!) This means that marijuana has “no currently accepted medical use in the United States, a lack of accepted safety for use under medical supervision, and a high potential for abuse” as defined by the scheduling guidelines. Other drugs listed as examples of Schedule I substances include heroin and ecstasy.  

There has been a repeated push to at least recognize the drug as Schedule II and therefore recognize its medical benefits, so it can live peacefully on the same list as cocaine, methamphetamine, methadone, oxycodone, and fentanyl. It’s important to note here that there are already several drugs derived from the cannabis plant.  For more on how the DEA’s scheduling works, see this informative Vox article.

• Taxes and the Cannabis Business

Did you know that even though cannabis businesses are illegal at the federal level, the IRS still requires these companies to file taxes? You heard that right! According to the IRS, “marijuana businesses are required to file federal income tax returns,” despite being “significantly limited in taking deductions” due to the nature of the business. IRC Section 280E states that a business that sells marijuana “consists of trafficking in a controlled substance (within the meaning of Schedule I and II of the Controlled Substances Act) which is prohibited by federal law or the law of any state in which such trade or business is conducted.” Taxes for a cannabis business include special marijuana sales taxes, state income taxes, as well as standard federal taxes paid to the IRS.

One issue at hand is that these taxes are prohibitive - Section 280E remains “one of the greatest barriers to entry in the legal cannabis business.” One cannabis company’s CEO, interviewed by CNBC, stated that the "tax burden is significant… Companies in our business are paying anywhere from 40, 50, 60, 70 percent." CEO of Wurk (an HR company specializing in marijuana businesses) Keegan Peterson even stated “Section 280E of the Internal Revenue Code is hindering the growth of cannabis businesses.”

Further confusing the matter of taxes is Attorney General Jeff Sessions’ rescission of the Obama-Era Cole Memorandum via memo in January - learn more about that here. The Cole Memorandum “represented a ‘hands-off’ approach by the federal government, allowing states to regulate the sale, use, and transfer of marijuana,” - effectively making it possible for the cannabis industry to grow in the states that recognize it as a legitimate business. While not technically a law, it limited the fear of federal enforcement and state cannabis industries saw immense expansion in the last few years. It has been noted that this move may have been made in an effort to stymie the growth of the market and scare away investors, since running such businesses as required will be a riskier endeavor.    

Curious how all of these policy issues will turn out? So are we! Stay tuned for future developments.