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LEGAL UPDATE May 2024: As anticipated in our Cannabis 2024 Outlook article “Still Growing Like a Weed”, the Department of Justice formally sought to reclassify marijuana from Schedule 1 drug under the Controlled Substances Act to a Schedule III drug. The reclassification, a major shift in US drug policy, recognizes marijuana as a less dangerous drug. Although the reclassification was approved by US Attorney General Merrick Garland, the reclassification would not legalize the recreational use of marijuana. The reclassification comes in the form of a new proposed rule that needs to be approved by the Drug Enforcement Agency.  The proposed rule is subject to a 60-day comment period.  Many legalization advocates, though recognizing the rule as step in the right direction, view the proposed reclassification as a half measure citing the fact full recreational use will not be permitted under the new rule.  What does this mean for commercial lenders? Even if the new rule is adopted by the DEA, marijuana will not be made legal for recreational use.  Any lender who finances a cannabis operation must continue to exercise the same level of care and due diligence review when approving a cannabis loan. This is just another step towards the (inevitable) legalization of recreational marijuana use on the federal level.

Since our last Cannabis Outlook Article published in April 2023, Cannabis legalization continues to expand and grow like a weed. Cannabis is now legal in twenty-four (24) states and the District of Columbia, while an additional seventeen (17) states have legalized its medicinal use. According to the Pew Research Center, the following statistics show the broad the expansion of cannabis since Colorado and Washington first legalized recreational use of Cannabis:

  • 54% of Americans live in a state where recreational use of cannabis is legal.      
  • 74% of Americans live in a state where marijuana is legal for either medicinal or recreational use.
  • 79% of Americans live in a county with at least one cannabis dispensary.
  • There are approximately 15,000 cannabis dispensaries in the United States. 

Only twelve (12) states, Idaho, Indiana, Kansas, Nebraska, North Carolina, South Carolina, Tennessee, Wisconsin, and Wyoming, continue to criminalize all forms of marijuana use.

Cannabis sales have continued to grow, though at a more moderate pace than many anticipated.   In 2023, Cannabis sales reach nearly $43 billion, with sales anticipated to reach nearly $50 billion by 2029. In states where Cannabis was recently legalized, 2023 year-end sales set records. 

In our last article, we listed several states with pending ballot initiatives that would legalize Cannabis. The outcome of those ballot initiatives is listed below:


On November 7, 2023, Ohio passed a ballot initiative that approved adult recreational cannabis use. The law went into effect on December 7, 2023.


As expected, Minnesota passed legislation that legalized recreational marijuana for adult use. Due to delays in the Office drafting implementing regulations, the Minnesota Office of Cannabis management does not expect full scale marijuana retail sales until mid-2025. 


Hawaii has not yet passed legislation that legalizes the use of recreational marijuana. +The Hawaii Senate recently passed a new bill to this effect; however, the bill has not been approved by the Hawaii House of Representatives. The Governor of Hawaii has pledged to sign into law any bill that authorizes adult recreational use of cannabis.   

New Hampshire

Members of the House of Representatives advanced legislation HB 1633, legalizing the adult use, production, and retail sale of cannabis. Lawmakers approved the bill by a vote of 239 to 141. New Hampshire is the only northeastern state that has not legalized and regulated the adult-use marijuana market.


Pennsylvania has not legalized recreational marijuana use.  That said, Pennsylvania Governor Josh Shapiro called for the legalization of marijuana for recreational purposes.  


Delaware House lawmakers again approved the legalization of cannabis. The legislation eliminated penalties for use and possession. Delaware’s Governor allowed two separate bills to become law without his signature, effectively legalizing recreational use of cannabis in April of 2023. Draft regulations established by the Delaware Marijuana Commissioner are awaiting final approval.    


Although medicinal cannabis use is legal in Kentucky, the state has yet to authorized recreational use. House Bill 420 (yes that is the name of the Bill) was recently introduced to legalize the recreational use of cannabis. Experts who follow the issue are doubtful of full legalization in Kentucky. 

Federal Law

Potential changes to federal law and the reclassification of marijuana from a Schedule 1 drug under the Controlled Substances Act to a Schedule III drug, are perhaps the most important and exciting changes that can impact the cannabis industry. In October of 2022, President Biden issued an Executive Order which required the Secretary of Health and Human Services and the Attorney General to initiate an administrative process to review how marijuana is scheduled under federal law.  The import of the Executive Order is to see if marijuana could be reclassified from a Schedule I drug (deemed the most dangerous) to a Schedule III drug (drugs that have a moderate to low potential for physical and psychological dependence). On August 23, 2023, the U.S. Department of Health and Human Services (HHS) issued a recommendation to the U.S. Drug Enforcement Administration (DEA) that cannabis be reclassified from a Schedule I drug to a Schedule III drug under the Controlled Substances Act. Experts differ on whether they anticipate the DEA accepting the HHS recommendation and taking the necessary steps to reclassify cannabis as a Schedule III drug. 

In connection with the potential reclassification of Cannabis under federal law, the U.S. Senate has proposed the SAFER Banking Act which would afford federally regulated financing institutions a safe harbor from criminal, civil, and administrative penalties that would otherwise stem from financial institutions banking cannabis related clients. Note that the SAFER Banking Act would not legalize marijuana on the federal level.  

What does this mean for commercial lenders? The cannabis industry, a burgeoning multi-billion-dollar industry, is growing at unprecedented rates. The cannabis legal landscape is complicated and comes with uncertainty. As more states legalize recreational use of cannabis, federal law makers are facing increased pressure to do the same. If federal restrictions are eased, commercial lenders can expect increased demand for cannabis related financings. The passage of the SAFER Banking Act would offer commercial lenders an incredible opportunity to increase their cannabis lending business, which in turn should reduce the cost of capital paid by cannabis operators. As usual, all lenders must properly structure their deals, carefully analyze their collateral position and thoroughly document cannabis related loans.  

Please reach out to Geraci LLP for all of your Cannabis Lending questions.

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