In August 2023, the U.S. Department of Health and Human Services (HHS) formally recommended marijuana be rescheduled from a Schedule I controlled substance to a Schedule III controlled substance in a first move toward federal weed legalization.

In the federal government’s eyes, this would align marijuana with drugs like ketamine and testosterone, make it federally legal to get with a prescription, and define it as having “moderate to low potential for physical and psychological dependence.” As it stands in Schedule I, the plant is currently likened to heroin and viewed as having “no currently accepted medical use and a high potential for abuse.”[1]

Even more momentous than the US federal government finally acknowledging the medical validity of the cannabis plant will be the effects the potential rescheduling has on the country’s 37 legal state cannabis markets (and counting).

Although there are proponents for and against the rescheduling recommendation, one major benefit the cannabis industry has acknowledged is the elimination of the 280E Internal Revenue tax code that’s currently burdening all plant-touching businesses. Under Schedule I, plant-touching businesses can only deduct costs of goods sold from their federal taxes. Other regular business expenses, which can usually be deducted to lower taxable income, like rent, utilities, advertising, and payroll, are specifically excluded under 280E. Depreciation of capital investments, such as facilities and improvements, are also excluded.

Without the ability to deduct business expenses and depreciation, the federal tax rate for plant-touching businesses can sometimes be as high as 80 percent[2], jeopardizing the chances of financial survival.

However, even without rescheduling, several MSOs have successfully challenged the 280E regulation and have begun to receive significant refunds from the IRS for previous tax periods.  Rescheduling would codify the elimination of 280E for good, boosting the bottom line of all operators.

Relieving that tax burden is significant and necessary when considering the other changes that could come with cannabis rescheduling. For example, if the plant were to be rescheduled to Schedule III, medical marijuana goods would become subject to the same medical laws and requirements as other drugs in Schedule III like anabolic steroids and Tylenol with codeine. That means, for medical markets, there would be much greater oversight by the Food and Drug Administration (FDA). With no current FDA involvement or broad standards for the types of testing medical cannabis products must pass before being eligible to sell, regulatory laws across the country are likely to experience major changes.

One potential implication of FDA cannabis regulation could be standards around mold and yeast content, something that currently varies by state. While some states have fairly strict laws around mold and yeast counts, like Massachusetts and Louisiana, others, like Connecticut and Florida, have taken a more lenient approach. Although we don’t yet know how the FDA might change mold and yeast count regulations, businesses should be prepared for change around current state-level standards.

On that topic, the FDA’s potential involvement means eligible cannabis brands may finally be able to claim USDA Organic status under the National Organic Program (NOP). However, it’s important for brands to recognize that, as it currently stands, food products treated with ionizing radiation to reduce yeast and mold counts are ineligible to be USDA Organic by NOP and FDA standards. It’s fair to assume cannabis products treated with ionizing radiation, such as X-ray, will also be ineligible for USDA Organic status, especially medical products.

Instead, the FDA could implement the USDA’s current rule for food products treated with ionizing radiation and require cannabis products treated with that technology to be labeled with the Radura, the international symbol that signifies a product has been irradiated. This label update could have a negative impact on a brand’s consumer trust and loyalty.

Time will tell whether the US federal government decides to reschedule marijuana as a Schedule III substance, but one thing that’s for certain is change at the federal level is coming, and cultivators need to have a plan in place for whenever federal oversight begins. For those concerned about passing regulatory compliance for mold and yeast content but not willing to compromise their product with ionizing radiation, non-ionizing radiation like Radio Frequency could be the answer.

Radio Frequency is already used to remediate foods like nuts and seeds, which are all regulated by the USDA and FDA. The technology is approved for USDA Organic operations as it has no impact on a product’s molecular structure. It simply uses long radio wavelengths to create an oscillating electromagnetic field around and within the product, causing moisture molecules to sync with the vibration and rotate in unison with it. The friction this generates creates enough heat to kill microbial pathogens without getting too hot to degrade or decarb THC, maintaining the chemical integrity of the plant.

Ziel is the cannabis industry’s leader in Radio Frequency remediation, having been granted the first-ever U.S. Patent for processes that include the treatment of cannabis with Radio Frequency in 2020. To learn more about what Ziel can do for your operation in preparation of federal change, contact us today.

Germany’s Future Cannabis Supply

Starting April 1, domestic production of cannabis in Germany is legal for anyone to partake.

For the last seven years, domestic cannabis cultivation for the country’s medical market has been limited to three federally approved suppliers. Because of this production cap, a supply gap of as much as 80% has been filled with imports primarily from Canada, Portugal, and the Netherlands.

Scaling domestic production to support this new market is expected to take years. In the meantime, the adult-use market is projected to increase product demand 7-10X, creating further reliance on imports. This demand will continue to be filled by imports from the Netherlands, Canada, and Portugal, emerging players in Macedonia, Malta, and Czech, as well as low-cost suppliers from Colombia.In keeping with its intention of building a pharmaceutical-grade system in the EU and the United Kingdom, all cannabis flower in Germany, whether imported or grown domestically, is required to be grown in GACP-validated facilities and processed post-harvest in GMP-validated facilities.

Germany Cannabis Exporting/Importing Requirements

Operators exporting cannabis flower to Germany, as well as domestic producers, have principally relied on ionizing radiation technologies like X-ray, gamma, or e-beam to meet the strict microbial compliance regulations detailed in the European Pharmacopoeia, which currently governs the EU cannabis regulatory framework. Not only are these treatments expensive, but they alter the molecular structure of the plant, creating free radicals and potentially unknown medical consequences.

Germany has taken a strong stance against both domestic and imported cannabis flower that has been treated with ionizing radiation. Producers that do use ionizing radiation are required to secure an AMRadV license for each strain treated with ionizing radiation. This license can take up to 12 months to receive and costs €4,500 per strain.

Separate from this license, the country also requires all exporters and domestic producers to follow EU GACP (Good Agricultural and Collecting Practice) and EU GMP (Good Manufacturing Practice) guidelines.

RFX Radio Frequency Microbial Treatment

Choosing non-ionizing technology like Radio Frequency (RF) to achieve microbial compliance is the most cost-effective solution for those looking to export cannabis to Germany. Radio Frequency is a non-ionizing radiation technology that ensures cannabis flower meets microbial compliance, doesn’t change the molecular structure of the plant, and therefore does not require AMRadV certification. Ziel’s RF technology has achieved EU GMP validation as a microbial control solution for cannabis flower and operating commercially in Europe. As a post-harvest treatment, RF can seamlessly integrate into EU GMP-certified operations. 

Ziel’s RFX machine has the largest throughput of any microbial control solution on the market today, making it ideal for cultivators looking to process large volumes. Using Ziel’s Business Case Calculator, cultivators can determine how much revenue the RFX will recover for their business by increasing harvest yields, avoiding compliance failure, and eliminating the need to send contaminated product off to extraction. This, in turn, also eliminates the subsequent costs for retesting. Cultivators interested in exporting to Germany are also encouraged to add up how much they’d spend in time and money on AMRadV licenses for each of their strains treated with ionizing radiation, an expense that’s nonexistent with Ziel’s RF technology.

To better understand just how much money the RFX can save a cultivation, explore the example below. Using a wholesale selling price of €4,000/kg, if a processor failed 20% of their annual harvest, they would be forced to retest, treat again, or offload the failed product to a manufacturer for a deep discount—as much as 90%, or €400. This snapshot shows the revenue a cultivator will recover within the first year of using the RFX, based on recovering 20% of the harvest that fails microbial testing on 1,000 kgs of dry flower harvested per annum.

In this example, more than €720,000 of revenue is recovered in the first year alone—more than double the cost of the RFX!

The Future of Germany’s Cannabis Market

As Germany spends the next five years monitoring its new adult-use market and the limited number of dispensaries it’s anticipated to license, microbial compliance regulations are expected to become clarified with the release of a German monograph designed specifically to address cannabis.

Cannabis cultivators looking to join Germany’s market must have a mold treatment solution in place. Radio Frequency is the safest and most cost-effective option on the market, requiring no additional licensing and operating in alignment with EU GMP processing guidelines.If you’re looking to streamline your product’s entry and position in the German cannabis market, let’s talk. Ziel’s RFX offers the largest throughput of any technology currently available and boasts a >99% pass rate for regulatory compliance. Together, we can get you set up to leverage what’s anticipated to be one of the largest cannabis markets in the world. Get in touch with Ziel today.

There’s no question cannabis businesses are going through a challenges in 2023, but many are still optimistic about what the future holds and see a shifting of momentum in 2024 as regulations evolve and the hype of the Green Rush wears off.

Marijuana Venture spoke with more than two dozen entrepreneurs and operators in the cannabis space to get their predictions for 2024. Part 2 of this four-part series will cover the challenges and opportunities that remain for surviving businesses.

Part 1: Consumer trends

Part 2: Challenges and opportunities

Part 3: Political movement

Part 4: Business operations