DEA issues first registrations to more than 900 medical marijuana dispensaries

Rescheduling could unlock federal tax deductions long denied cannabis businesses

The U.S. Drug Enforcement Administration issued registrations Friday to more than 900 state-licensed medical marijuana dispensaries, the first registrations the agency has granted to such businesses, the Justice Department said in a news release. The registrations went to dispensaries in Alabama, Florida, Mississippi, South Dakota, Texas, Virginia and West Virginia. The department did not immediately identify the approved businesses.

The registrations are a bureaucratic step under President Donald Trump’s rescheduling of the drug, and they could pave the way for the businesses to receive federal tax benefits long denied the industry. Attorney General Todd Blanche said 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.”

The move carries out the April order Blanche signed shifting 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 reclassification 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 seeking registration must undergo a pre-registration investigation and have security, recordkeeping, inventory controls and other safeguards governing the handling of controlled substances.

The tax implications are central to the change. Historically, state-licensed cannabis businesses could not 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 found that arrangement financially crippling. Registering with the agency is expected to make those deductions available.

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

Steph Sherer, founder of the medical cannabis organization Americans for Safe Access, noted that the registrations came 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.”

Questions remain, however, about how the newly registered businesses will be overseen. The way state-licensed medical marijuana businesses are regulated is vastly different from how most companies dealing with Schedule III drugs are supervised, and it is unclear exactly what requirements the DEA may seek to impose on medical cannabis.

Some cannabis industry attorneys have noted that 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 is not certain whether the DEA will adopt that approach with the businesses it registers.

Many states have also 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.

The registrations land on a varied legal map. Two dozen states plus Washington, D.C., have authorized adult recreational use of marijuana, 40 states 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?”