Predictions for 2024: Which States Will Legalize Cannabis Next After Schedule Change?

In the realm of the legalized cannabis industry, there exists a palpable sense of anticipation as stakeholders eagerly await the forthcoming decision of the U.S. Drug Enforcement Administration (DEA), an event poised to mark a monumental turning point in the annals of U.S. cannabis policy – a turning point that has not been witnessed in half a century.

Should the protracted odyssey initiated by the Biden administration in October 2022 continue to progress along its anticipated trajectory, the year 2024 is likely to witness a significant alteration in the scheduling of cannabis within the framework of the Controlled Substances Act (CSA). Specifically, cannabis is slated to be reclassified to Schedule 3, which carries profound implications for the industry. Among these implications is the prospect of tax reform, given that the contentious Section 280E of the federal tax code would cease to exert its impact.

The weight of Section 280E has borne heavily upon state-legal cannabis retailers, exacerbating their financial challenges and exacerbating economic difficulties along the entire supply chain. The potential alleviation of this burden holds the promise of providing substantial relief to these businesses, and, intriguingly, it may also serve as a political boon to President Joe Biden, potentially enhancing his chances of securing reelection.

However, the crucial question remains whether this anticipated tax relief would materialize swiftly enough to rescue beleaguered cannabis enterprises, which are already grappling with an array of state-level obstacles, including declining wholesale prices and a thriving illicit market.

Simultaneously, there is a multitude of other significant developments that command our attention. The next state endeavoring to legalize cannabis for adult use is confronted with a critical hurdle, as it must navigate either a legal challenge or the complexities of partisan discord to achieve its goal. On the federal front, the halls of Congress bear the responsibility of finally enacting legislation addressing cannabis banking reform, a move with the potential to expedite the listing of cannabis stocks on major exchanges and attract substantial investment in an otherwise turbulent market.

Nevertheless, it would be prudent not to harbor overly optimistic expectations of immediate progress in these matters. The intricacies and deliberations associated with such legislative and legal endeavors often engender protracted timelines.

In the pages that follow, we present our prognostications for the legalized cannabis industry in the year 2024, offering insights into the multifaceted landscape that lies ahead.

The Proposal for Cannabis Rescheduling Will Be Introduced by the Drug Enforcement Administration

There is a notable absence of indications suggesting that the Drug Enforcement Administration (DEA) will deviate from the recommendation dated August 29, which emanated from the Department of Health and Human Services (HHS). This recommendation, calling for the reclassification of cannabis from Schedule 1 to Schedule 3 under the Controlled Substances Act (CSA), represents a groundbreaking acknowledgment of the therapeutic potential of cannabis. Importantly, this determination is underpinned by a wealth of data furnished by various states, rendering it a formidable assessment that the DEA is unlikely to countermand.

As a result, it is highly probable that the comprehensive administrative review about the rescheduling of cannabis, a process set in motion by the Biden Administration in October 2022, will persist. Nevertheless, the precise course of action that will unfold in the wake of this recommendation remains shrouded in uncertainty.

Foreseeably, the journey ahead is fraught with legal challenges, the duration of which remains indeterminate. These challenges may emerge from various quarters and may encompass complex legal arguments, adding further layers of complexity to the rescheduling process.

Eventual Arrival of Tax Relief on the Horizon

The rescheduling of cannabis holds the promise of a substantial transformation in the financial landscape for state-legal cannabis businesses operating within the United States. Central to this transformation is the potential liberation from the constraints of Section 280E, a provision within the federal tax code that currently hinders these businesses from deducting a multitude of standard operating expenses on their federal tax returns.

The impending removal of this onerous regulatory burden could usher in a brighter future for the burgeoning U.S. cannabis industry, which has grown to an estimated worth of $34 billion. It is estimated by experts such as Beau Whitney, co-founder of Oregon-based Whitney Economics, that the collective tax savings for the nation’s cannabis retailers could amount to an additional $2 billion, a substantial boon that could fortify their financial stability.

However, it is worth noting that the benefits of rescheduling would not be restricted solely to future tax obligations. Some cannabis enterprises have already embarked on endeavors to seek relief for tax payments made in prior years. Notably, Trulieve Cannabis, a prominent multistate operator headquartered in Florida, is currently engaged in a pursuit of a federal tax refund amounting to a significant $143 million. Their argument is grounded in the belief that they do not owe the taxes they have paid over three years.

The outcome of Trulieve’s endeavor to secure this substantial refund is poised to be of considerable consequence, as it may serve as a precedent-setting case that will undoubtedly influence the course of action for numerous other cannabis businesses grappling with similar tax-related challenges. The resolution of this matter is thus eagerly anticipated by industry stakeholders and observers alike, as it may pave the way for substantial financial relief for a broader spectrum of cannabis businesses operating within the United States.

Federal Progress in 2024: Rescheduling as the Primary Development

In the year 2023, there was a notable advancement on the long-standing agenda of banking reform within the hallowed halls of Congress. This significant progress materialized with the U.S. Senate Banking Committee’s successful passage of the SAFER (Secure and Fair Enforcement Regulation) Banking Act during a crucial markup hearing. Such a development was heralded as a significant stride toward addressing the financial challenges and uncertainties plaguing the cannabis industry.

However, as we peer into the horizon of 2024, the prospects for the final approval of banking reform legislation appear less sanguine. A recent poll of senior congressional aides conducted by Punchbowl News revealed that a mere 13% believe that banking reform will successfully pass through the corridors of the current 118th Congress. This sentiment finds resonance in the broader context of the legislative landscape, which appears beset by various signs of political impasse.

Democratic Senate Majority Leader Chuck Schumer, in a statement made in November, alluded to his ongoing efforts to garner support from Republican senators before committing to advancing the legislation for a full vote on the Senate floor. Given his previous opposition to similar initiatives when occupying a relatively obscure position in Congress, it is challenging to envision the new Republican House Speaker, Mike Johnson, displaying a proclivity for championing cannabis reform. This skepticism persists despite the earlier versions of the SAFER Banking Act finding a relatively smooth passage through a Democratic-controlled House of Representatives.

Additionally, within the sphere of the cannabis industry, there exists a growing hope that the forthcoming iteration of the federal Farm Bill will address the proliferation of hemp-derived competitors operating across the nation. Yet, the imposition of state-level restrictions and outright bans on various cannabis-related activities may serve as a deterrent for federal lawmakers, potentially leading them to defer the responsibility of addressing these issues to the states themselves.

Thus, as we navigate the complex terrain of federal cannabis policy in 2024, the path toward comprehensive reform remains fraught with uncertainties, characterized by political maneuvering, partisan dynamics, and the overarching question of whether the federal government will actively intervene in this arena or defer to the states’ discretion.

Florida and Pennsylvania Next in Line to Legalize Cannabis

The year 2023 brought with it a surprising turn of events in the realm of cannabis legalization, challenging preconceived notions and reshaping the landscape for cannabis reform. Oklahoma’s rejection of cannabis legalization in March initially appeared to suggest that the momentum for cannabis reform had waned. This development led some to believe that a formidable “red wall” stood in the path of cannabis legalization, particularly in conservative states.

However, this perspective was significantly challenged in November when Ohio voters decisively legalized adult-use cannabis by a substantial margin. This outcome served as a compelling indicator that the tide may be shifting, and it bolstered hopes for Florida to emerge as the next state to embrace recreational cannabis legalization.

In Florida, efforts are underway to place a legalization measure on the ballot for November 2024, with support from industry players like Trulieve Cannabis. Nevertheless, achieving this goal presents a formidable challenge. Recent amendments to the state’s constitution now stipulate that a proposed constitutional amendment must secure the support of 60% of voters or achieve a 20-point victory to pass. Furthermore, the fate of the measure is contingent upon its survival of an ongoing constitutional challenge before the Florida Supreme Court.

In another corner of the United States, Pennsylvania is emerging as a significant focal point for cannabis legalization discussions. In December, the Pennsylvania Legislature approved a substantial expansion of the state’s medical cannabis industry. The state’s Democratic Governor, Josh Shapiro, has signaled his willingness to consider any adult-use legalization measure presented by lawmakers. However, the journey towards legalization in Pennsylvania has been marked by a familiar partisan impasse, with Republican leaders in the state Senate maintaining their opposition to such measures in the absence of federal reform.

Nevertheless, Ohio’s recent embrace of adult-use cannabis has placed significant pressure on Pennsylvania legislators, given that five out of the six states bordering Pennsylvania have already legalized adult-use cannabis. While the odds of immediate action remain relatively slim, Pennsylvania stands in a more favorable position compared to other states as it contemplates potential legalization in 2024.

Looking beyond the immediate horizon, the success of medical cannabis programs in traditionally conservative regions such as the Deep South, exemplified by states like Louisiana and Mississippi, hints at a broader trend. It suggests that the next wave of adult-use cannabis legalization may emerge from unexpected and historically conservative areas, marking a transformative shift in the cannabis policy landscape.

Cannabis Reform: A Talking Point in the 2024 Presidential Campaign

The role of cannabis legalization in influencing the outcome of the 2020 presidential election has been a subject of consideration among political observers, including retiring U.S. Rep. Earl Blumenauer. The notion that the issue of cannabis legalization played a pivotal role in securing President Biden’s victory has garnered attention and speculation within the political sphere.

As we look ahead to the year 2024, it becomes evident that cannabis will once again feature prominently on the political landscape, potentially becoming a key issue in the presidential campaign. The prospect of a legalization measure appearing on the ballot in Florida and the eagerly anticipated commencement of adult-use cannabis sales in Ohio, slated for the autumn of 2024, ensure that cannabis policy will be a matter of significance for certain segments of the electorate.

Moreover, it is noteworthy that the current trajectory of polling data suggests a decline in popularity for President Biden, which may necessitate the incorporation of compelling and attention-grabbing issues into his campaign strategy to reinvigorate voter turnout. In this context, cannabis reform emerges as a potential platform to energize specific voter demographics and garner support.

As the 2024 presidential campaign unfolds, it will be intriguing to observe how candidates navigate the intricacies of cannabis policy and whether they choose to capitalize on its appeal to voters. The issue of cannabis reform could indeed serve as a litmus test for the candidates, offering insights into their ability to resonate with a diverse and evolving electorate.

States Taking Action Against Illegal Cannabis Market

In December, New York Governor Kathy Hochul proudly celebrated the opening of the state’s 37th legal adult-use cannabis dispensary, highlighting what she referred to as the “nation-leading adult-use cannabis industry.” However, amidst the backdrop of this achievement, a pressing concern looms over the burgeoning illicit cannabis market, which arguably represents the most significant and audacious challenge faced during the era of legalization.

The critical importance of addressing and ultimately taming the illicit market cannot be overstated, for it is essential for the success of the legalized cannabis industry. The extent of the illicit market’s presence in New York is daunting, with estimates ranging from 1,500 to potentially as many as 8,000 unlicensed cannabis sellers operating in New York City alone. In stark contrast, the recent closure, albeit promised to be permanent, of a notorious unlicensed store in Brooklyn marked only the ninth such closure to date.

There are indeed reasons for optimism on the horizon, particularly as the state’s legal retail capacity is gradually expanding. Major multistate operators have received approval to commence adult-use retail sales as of December 29. This development holds the potential to divert customers away from the illicit market. However, the effectiveness of these new retail options in achieving this goal remains uncertain. The question persists as to what combination of enforcement measures and market incentives will prove most effective in curbing unlicensed cannabis sales.

Furthermore, it is worth noting that the illicit market continues to thrive in other states with established legal cannabis programs, including California. Regulators, lawmakers, and law enforcement agencies find themselves on notice, facing the formidable challenge of devising effective solutions and delivering tangible results in their ongoing battle against the persistent illicit cannabis market. The coming years will undoubtedly serve as a critical litmus test for the efficacy of these efforts in ensuring the success and sustainability of the legal cannabis industry.

States Must Fulfill Social Equity Commitments or Redefine the Cannabis Industry’s Fairness

Despite strides made in the legal cannabis industry, significant challenges persist in achieving the pledged goals of criminal justice reform and social equity. New York, in particular, distinguished itself by vowing to prioritize small businesses, including those operated by individuals who had been ensnared in the war on substances, in the legal cannabis marketplace. However, these initial plans encountered constitutional obstacles, prompting states to reassess their approaches to ensuring that disadvantaged groups have a meaningful presence in the legalized cannabis industry.

It has become increasingly apparent that more concerted efforts are required to translate these lofty expectations into tangible outcomes. Social equity programs in various states are now grappling with legal challenges brought forth by aspiring entrepreneurs who contend that they are being unjustly excluded from the opportunities presented by the legal cannabis market.

Against this backdrop, one can anticipate that lawmakers, particularly in states like Ohio, which concluded 2023 without implementing promised changes to their voter-approved adult-use legalization measures, will seek to devise innovative, lawsuit-resistant equity plans. These plans could potentially serve as templates for other states grappling with similar issues, although the quest for such a solution remains a complex and uncertain endeavor.

In essence, the struggle to deliver on the commitments of criminal justice reform and social equity within the context of the legal cannabis industry continues to be a work in progress, marked by legal challenges and evolving strategies aimed at rectifying historical disparities and ensuring a fair and equitable marketplace for all. The coming years will undoubtedly provide further insights into the extent to which states are willing and able to address these critical issues effectively.