By Jeff Mason, Pratik Jain and Sarah N. Lynch
WASHINGTON (Reuters) - The U.S. Justice Department on Tuesday moved to make marijuana use a less serious federal crime, taking a step to remove the drug from a category that includes heroin in a shift that could shake up cannabis policy nationwide.
Shares of cannabis firms including Tilray (NASDAQ:TLRY), Trulieve Cannabis (OTC:TCNNF) Corp and Green Thumb Industries (OTC:GTBIF) surged.
The Justice Department, which oversees the Drug Enforcement Administration, said Attorney General Merrick Garland recommended that cannabis be classified as a so-called schedule three drug, with a moderate to low potential for physical and psychological dependence, instead of schedule one, which is reserved for drugs with a high potential for abuse.
Penalties for possession and use of schedule three drugs can be less severe under federal law.
The proposal goes from the Justice Department to the White House Office of Management and Budget for review and finalization. A public comment period will follow.
President Joe Biden, a Democrat who is running for re-election in November, initiated a review of the drug's classification in 2022, fulfilling a campaign promise that was important to left-leaning members of his political base.
Currently, the drug falls under the DEA's class that includes heroin and LSD. It would be moved to a group that contains ketamine and Tylenol with codeine.
GAP BETWEEN STATE, FEDERAL LAWS
Reclassifying marijuana represents a first step toward narrowing the chasm between state and federal cannabis laws. The drug is legal in some form in nearly 40 states.
While rescheduling the drug does not make it legal, it would open up the doors to more research and medical use, lighter criminal penalties and increased private investment in the cannabis sector.
The Justice Department's move came after the Health and Human Services Department in August recommended rescheduling cannabis as part of Biden's ordered review.
Public support for marijuana legalization has risen from 25% of U.S. adults in 1995 to 70% in 2023, according to polling group Gallup.
Colorado and Washington became the first states to allow recreational marijuana in 2012. Owen Bennett, an analyst at Jefferies investment banking group, said reclassification would increase the chances of full federal legalization within five years.
Colorado Governor Jared Polis said in a statement that he was "thrilled" that the Biden administration would be "correcting decades of outdated federal policy."
Black Americans and communities of color have been disproportionately impacted by marijuana drug enforcement for decades. Black people are 3.6 times more likely than white people to be arrested for marijuana possession, despite similar usage rates, according to the American Civil Liberties Union.
According to the Pew Research Center, Black and white Americans used marijuana at roughly comparable rates in 2020. Yet Black people accounted for 39% of all marijuana possession arrests despite being only 12% of the U.S. population then.
Biden and Vice President Kamala Harris are seeking to bolster support from Black voters for their re-election bid against former President Donald Trump, a Republican.
The change would also enable more medical research under the U.S. Food and Drug Administration, which supports the reclassification. Cannabis has been successfully used to treat pain, spasticity and epilepsy, among other conditions.
Smart Approaches to Marijuana, a group against the "commercialization and normalization" of marijuana, said it would mount a legal challenge if the proposal is finalized. It said investors in the marijuana industry would be the biggest beneficiaries of the change.
“This industry, which has lobbied heavily to sell demonstrably harmful products, will now use this announcement to drive even more deliberate misinformation about these high-potency drugs to expand use and addiction," Kevin Sabet, the group's president, said in a statement.
While states have set a minimum age of 21 for legal recreational marijuana use, concerns are likely to be raised about whether the proposed change could affect youth.
Research has shown marijuana use in the teen years puts individuals at higher risk of not finishing high school, harm to brain development and later mental health disorders such as schizophrenia, according to the Centers for Disease Control.
A study published in March said there was no compelling evidence that legalizing marijuana sales to U.S. adults increased consumption among young teens.
BOON TO CANNABIS BUSINESS
If marijuana's classification were to ease at the federal level, cannabis companies could reap significant benefits.
Their shares could be eligible for listing on major stock exchanges, and the companies could receive more generous tax deductions.
Moreover, they could face fewer restrictions from banks. With marijuana illegal federally, most U.S. banks do not lend to or serve cannabis companies, prompting many to rely on cash transactions. This has made some vulnerable to violent crime.
The National Cannabis Roundtable, which represents cannabis companies, said the move "is critical for state legal cannabis businesses to be treated with fairness ... and to survive the threat the illicit market poses to the regulated market and public safety," said Executive Director Saphira Galoob.
The Associated Press first reported the DEA's reclassification recommendation on Tuesday.