With the stroke of a pen, President Trump has radically altered federal law in regard to Cannabis. The big news is that Marijuana is no longer in the same classification as heroin. What does this mean for Colorado’s Cannabis industry? How will this impact Colorado real estate? Does this open banking to the Marijuana industry?
Big changes in Drug Policy due to reclassification
On Thursday, President Donald Trump signed an executive order that moved to reclassify cannabis from a Schedule I to a Schedule III substance, following through on a regulatory shift first pushed during the Biden administration.
“Decades of federal drug control policy have neglected marijuana’s medical uses,” the order says. “That oversight has limited the ability of scientists and manufacturers to complete the necessary research on safety and efficacy to inform doctors and patients.”
Reclassification of Marijuana does not legalize at Federal level
While the reclassification is intended to bolster medical marijuana research and will not legalize cannabis at the federal level. There is currently no proposal to legalize Marijuana at the federal level, this merely changes the classification of the drug.
Even with Reclassification of Cannabis, Still hard for Banking
Even with the schedule change, it does not resolve any issues related to banking. As Marijuana is still illegal at the federal level, many banks will tread lightly, and most will still be unwilling to bank many in the industry
Big benefits for federal business taxes due to reclassification
One of the biggest benefits is that now Cannabis businesses can deduct their expenses against their income. For example, under the prior classification, the cost of goods sold could not be deducted from profit which drastically increased the tax burden on Marijuana businesses. The new change will enable businesses to lower their tax burden substantially which should dramatically help their profitability.
Not much change for real estate due to federal Marijuana changes
Unfortunately, the schedule change will not drastically alter cannabis real estate in Colorado. Even with the changes, Colorado has a huge oversupply as for years Colorado was a net supplier to many surrounding states. As other states have legalized this has altered the economics of Cannabis in Colorado. I don’t see huge growth in the growing or manufacturing of Cannabis which will lead to continued pressures on real estate tied to the industry.
Reclassification of Marijuana is a step in right direction, but doesn’t resolve big issues
Regardless of your particular view on Marijuana, this change is long overdue. I think most would agree that Cannabis is considerably less dangerous than Heroin which is what prompted the declassification. Furthermore, Marijuana use has surpassed alcohol use throughout the US for better or worse depending on your opinions and it is long overdue to actually study the true impacts of Marijuana.
Changing the schedule of marijuana is a step in the right direction, but there also needs to be a push to enable banking. It is crazy that 24 states have legalized cannabis for recreational use and 40 for medical use and yet banking is still under the table for most of these businesses. Not allowing banking has increased crime due to the amount of cash being used and enabled the black market. Furthermore it has substantially increased the costs for these businesses which further impacts their pricing and ability to compete with the underground market.
Although the schedule change did not resolve banking or the issues with real estate it is a step forward for the industry and I presume will ultimately lead to more changes at the federal level.
Additional Reading/Resources
https://coloradohardmoney.com/category/marijuana-lending-banking/
https://coloradohardmoney.com/colorado-pot-industry-crashes-impact-on-real-estate/
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Glen Weinberg personally writes these weekly real estate blogs based on his real estate experience as a lender and property owner. He is the owner of Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Glen resides in Colorado, lends in Colorado, owns property in Colorado, and services loans in Colorado which provides a unique real estate prospective of what is actually happening on the ground both in Denver and throughout Colorado. My goal of this real estate blog is to provide an honest assessment of what I see happening in Colorado real estate and how it will impact real estate owners, buyers, realtors, mortgage professionals, etc…
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