Smoke Show: Introducing our new column on all things cannabis and cannabiz

Illustration by Cassondra Jones

As we are now fully immersed within the Heartland heat, everyone is searching for different ways to chill out. There’s one resort that plenty of people within Kansas City are opting into: Sparking up!

With medical and recreational cannabis sales reaching up to $124 million in May 2024, the Missouri cannabis market has now reached over $2.5 billion in cumulative sales since the first medical cannabis sale in Oct. 2020, according to The Missouri Cannabis Trade Association (MoCannTrade)—a conglomerate of professionals within the industry who serve as the voice of the Missouri cannabis market.

Out of this $2.5 billion, $370 million in cumulative sales tax revenue has been generated within the adopted Missouri tax program. While consumers are not usually thrilled about paying more than their usual $25 or $30 for an eighth, these hundreds of millions do go to a good cause: supporting veterans’ healthcare and expunging nonviolent marijuana criminal records.

Throughout the state, there are around 200 total dispensaries, with nearly 50 in the Kansas City metro area. But the market goes far beyond just these over-the-counter transactions. Between all of the cannabis facilities—cultivators, manufacturers, lab testing, and dispensaries—there are hundreds of different locations throughout the state where buds continue to blossom, which has created nearly 20,000 jobs within the sector.

Considering that all of this traction has already been made within the state since the first recreational cannabis sale occurred on Feb. 3, 2023, about a year and a half ago, it is safe to say that the recreational legality of the plant has received a warm welcome from Missourians. And with so much continuing growth within the field, it is only right to keep track of the fun (and not so fun) developments happening in the Show-Me State.

With all that being said, welcome to The Pitch’s new Smoke Show column.

Establishing the New Norm

In April of this year, the DEA made the decision to reschedule cannabis from a Schedule I substance to a Schedule III under the Controlled Substances Act, recommended by the U.S. Department of Health and Human Services (HHS). What was once categorized with substances such as heroin, peyote, and others that are considered to have no medical benefit and high risks for abuse, now sits among the schedule III substances, such as Tylenol and ketamine, which are considered to have moderate to low risk of abuse and dependence.

“This plan has been providing benefits to folks for thousands of years, so normalizing both the industry, and the perception of marijuana in general has been a big part of our efforts,” MoCannTrade Executive Director Andrew Mullins says. “Seeing the government take the steps to put this in Schedule III, which obviously changes the classification to have a moderate or low potential for physical and psychological dependence, but also opens up the entire plethora of opportunities with the medical community. This has just been so exciting, and just positive for everything that we’ve been trying to do on behalf of the industry and on behalf of Missouri patients and consumers.”

One of the major benefits of this rescheduling would be that licensed cannabis facilities would be able to officially receive federal tax deductions that they have previously been barred from under the Section 280E tax code. The tax—implemented by the IRS—forbids businesses trafficking Schedule I or II substances from deducting what would be considered normal business expenses from their gross income.

“The marijuana industry—both in Missouri and across the country—are saddled with this very challenging tax burden that no other businesses have,” Mullins says. “So when you think about what the effect of that is, patients and consumers who are purchasing cannabis in dispensaries, we’re hoping that we’re going to see a lot more parity between those businesses.”

As of right now—prior to any official rescheduling—cannabis businesses across the nation are held to strenuous and restrictive standards in terms of how they handle their finances, and how much they pay in taxes, compared to businesses within similar industries, such as alcohol and tobacco.

“We’re virtually paying taxes at about 65 to 70 percent, top-line revenue number,” BeLeaf Medical Founder Mitch Meyers says. “So when a lot of people want to get into cannabis, they think they’re gonna make money quick, it’s not a quick turn just because of that, and because of how expensive capital is in our space.”

On top of the benefits on the financial side, the cannabis industry as a whole will soon begin to see plenty of advancements in the research aspect of the plant.

“When I first got involved in the industry six years ago, I think there were like 55 or 60 recognized, beneficial cannabinoids,” Mullins says. “Now, I believe there are upwards of 140 or 150 identified cannabinoids within the cannabis plant. So the fact that many of those have not been fully researched, and we really just don’t know all the various applications, this research opportunity to reschedule just totally changes the complete dynamic and allows for all of us to understand what the real power of the plant’s potential is.”

Previously, any research conducted had to be federally sanctioned and cost a hefty sum of money. However, if these changes were to get pushed to the finish line, groundbreaking studies and reports could begin to roll out, providing an even safer and more secure market across the nation.

“Each of us operating state by state want to see that research, but it’s very difficult—because of 280E—to amass enough profits to fund this,” Meyers says.

While this rescheduling does play a huge role as far as obtaining critical research goes and changing the perception of the substance as a whole within the country, there will not be much of a change seen at our state level in the near future.

“It all stays pretty much at a state regulatory framework and legalization, and there’s really no change there. As we understand it, it’s sort of all the other halo of implications that seemed to benefit,” Mullins says.

Now that the DEA has presented this rescheduling process, the following steps involve the White House Office of Management and Budget approval of the change, then sending it to public comment before finalization.

“We expect that there’s going to be challenges. Some of the anti-cannabis groups are gearing up to file a lawsuit to keep it from happening, so we’re gonna have to work through all that. I don’t see it coming to fruition, if it does, for at least a year,” Meyers says.

“In a perfect world, we would see this realized and implemented before the next tax filing year,” Mullins says. “So it would have an impact over the 2014 tax year for businesses, both in Missouri and across the country. That would start to show an immediate benefit to patients and consumers and how they realized this at the retail level.”