Business
DEA's big marijuana shift could be a lifeline for California's troubled pot industry
If the U.S. Drug Enforcement Administration reclassified marijuana as a less dangerous drug, it wouldn’t eliminate the conflicts between the feds and states such as California that have legalized many uses of the substance.
But it would bring one significant shift that could give California’s licensed pot companies a badly needed boost: a lighter tax burden.
The Associated Press reported Tuesday that the Drug Enforcement Administration will propose moving marijuana from the list of Schedule I drugs, which includes heroin and cocaine, to Schedule III drugs, which include ketamine and anabolic steroids. The proposal would still have to be reviewed and endorsed by the White House as well as be made available for public comment.
Industry insiders say the move, if approved, could become a lifeline to California’s struggling cannabis industry. “We’ve been anticipating this,” said Meital Manzuri, an attorney whose firm specializes in the cannabis industry. “This is big for the industry.”
Lawful in California but illegal under federal law, the state’s cannabis industry has operated in a difficult legal limbo. Stores and farms operate in the open, but they’re cut off from benefits that other businesses enjoy, such as access to out-of-state markets.
Their murky legal standing has also meant that banking, credit card processing, insurance and other vital business services are out of reach for many marijuana businesses.
The tax burden, though, has been particularly onerous. Section 280E of the federal tax code bars businesses involved in “trafficking” of Schedule I or II substances from deducting the expenses they incur. As a result, they are taxed on every dollar they collect, not just their profits.
But if marijuana is reclassified as a Schedule III drug, “players in that industry for the first time will be able to take standard tax deductions that other businesses take,” said Paul Armentano, deputy director of the National Organization for the Reform of Marijuana Laws, also known as NORML, which advocates for cannabis consumers. “The biggest change is going to be how the industry does business.”
“The industry in California especially has been faltering in the last couple of years and this offers them a future,” Manzuri said. “It might be a lifeline that they need to continue operating.”
According to the California Department of Tax and Fee Administration, legal marijuana shops reported about $5.1 billion in revenue in 2023, less than the previous year and 11% less than in 2021.
For years, licensed businesses have struggled to compete with a burgeoning black market that, while avoiding licensing, fees and taxes, can sell its wares at a fraction of the price charged by legal outfits.
But Armentano hopes those in the industry don’t “jump the gun” and that, if marijuana is reclassified, it may still take some time for changes to become tangible.
If cannabis is reclassified, he said, it would nevertheless remain illegal under federal law for recreational uses. States that have legalized marijuana, he said, don’t operate under the federal standards.
Thirty-seven states have legalized cannabis for medicinal use, seven others have legalized CBD oil for medicinal use and 24 states have legalized cannabis for recreational use, according to DISA Global Solutions, a company that administers drug tests.
Some organizations that oppose marijuana legalization, including Smart Approaches to Marijuana, have announced their intent to challenge the final rescheduling decision.
“Crude marijuana has never passed safety and efficacy protocols,” said Dr. Kevin Sabet, president of Smart Approaches to Marijuana, calling it a political decision in an election year. “Politics and industry influence have loomed over this decision from the very beginning.”
If the reclassification is ultimately approved, it would recognize medicinal uses for marijuana and require the drug be sold and regulated on the federal level similar to how ketamine, some anabolic steroids and Tylenol with codeine are regulated. Products would need federal approval — which no cannabis product currently has.
“The majority of the states regulate cannabis in a way that’s inconsistent with federal law,” Armentano said.
That means other financial benefits, such as banking and insurance, would still be out of reach for many businesses, Manzuri said, especially for dispensaries that operate for recreational use.
That has remained an ongoing issue for dispensaries, which typically operate as cash-only businesses. Many of them are unable to obtain banking services for what has grown to be a billion-dollar industry, although the California Department of Cannabis Control has sought to help marijuana businesses set up bank accounts.
The major credit card companies, though, won’t process marijuana-related payments, and reclassifying the drug to Schedule III wouldn’t change this, experts said.
“The payments industry only processes legal products, and reclassification does not make cannabis legal,” said Scott Talbot, executive vice president of the Electronic Transactions Assn. “Reclassification moves the needle but doesn’t cross the goal line to making cannabis legal and thus acceptable to banks and the credit and debit card industry.”
Yet reclassifying could help address some of the stigma that has been associated with marijuana and the cannabis business, Armentano said. It will be part of a long process, especially for a service as important to the industry as banking.
“My presumption is that marijuana could be made legal tomorrow, and your Chases, JP Morgans, and Wells Fargos would still say, at least at first, that it doesn’t change our bottom line,” Armentano said.
But those who have been navigating the legal waters of the weed industry still welcome the potential benefits of reclassification.
“Rescheduling won’t legalize cannabis or let a doctor prescribe it, but it will allow existing marijuana companies to be taxed like any other business — essentially a huge investment in the overall sector by the way of tax relief,” said Adam Terry, chief executive of Cantrip, a THC-infused drink company based in Massachusetts. “[Reclassification] improves the overall economic health of the industry and continues to inch towards legitimization in the eyes of the public.”
“The California cannabis industry needs that right now,” said Amy Jenkins, legislative advocate for the California Cannabis Industry Assn. “The industry has a significant number of challenges with our existing taxation framework.”
Whitney Economics, a cannabis-focused research company, estimated last year that legal cannabis operators in the U.S. overpaid more than $1.8 billion in taxes in 2022 when compared with other businesses.
Reclassification, Jenkins said, “would provide greater stability to the legal cannabis industry.”
It could also allow more entities to conduct research, possibly opening the doors to industry innovation and greater medicinal benefits. “No one has been able to research it on a wide scale for a long time,” Manzuri said.
For Armentano, whose organization wants states to be allowed to regulate marijuana the way they can regulate alcohol, the possibility of reclassification doesn’t go far enough.
“It’s going to be a very long time after the fact before regulators at the FDA and DEA and other agencies acknowledge that this change isn’t sufficient,” he said.
Business
U.S. Space Force awards $1.6 billion in contracts to South Bay satellite builders
The U.S. Space Force announced Friday it has awarded satellite contracts with a combined value of about $1.6 billion to Rocket Lab in Long Beach and to the Redondo Beach Space Park campus of Northrop Grumman.
The contracts by the Space Development Agency will fund the construction by each company of 18 satellites for a network in development that will provide warning of advanced threats such as hypersonic missiles.
Northrop Grumman has been awarded contracts for prior phases of the Proliferated Warfighter Space Architecture, a planned network of missile defense and communications satellites in low Earth orbit.
The contract announced Friday is valued at $764 million, and the company is now set to deliver a total of 150 satellites for the network.
The $805-million contract awarded to Rocket Lab is its largest to date. It had previously been awarded a $515 million contract to deliver 18 communications satellites for the network.
Founded in 2006 in New Zealand, the company builds satellites and provides small-satellite launch services for commercial and government customers with its Electron rocket. It moved to Long Beach in 2020 from Huntington Beach and is developing a larger rocket.
“This is more than just a contract. It’s a resounding affirmation of our evolution from simply a trusted launch provider to a leading vertically integrated space prime contractor,” said Rocket Labs founder and chief executive Peter Beck in online remarks.
The company said it could eventually earn up to $1 billion due to the contract by supplying components to other builders of the satellite network.
Also awarded contracts announced Friday were a Lockheed Martin group in Sunnyvalle, Calif., and L3Harris Technologies of Fort Wayne, Ind. Those contracts for 36 satellites were valued at nearly $2 billion.
Gurpartap “GP” Sandhoo, acting director of the Space Development Agency, said the contracts awarded “will achieve near-continuous global coverage for missile warning and tracking” in addition to other capabilities.
Northrop Grumman said the missiles are being built to respond to the rise of hypersonic missiles, which maneuver in flight and require infrared tracking and speedy data transmission to protect U.S. troops.
Beck said that the contracts reflects Rocket Labs growth into an “industry disruptor” and growing space prime contractor.
Business
California-based company recalls thousands of cases of salad dressing over ‘foreign objects’
A California food manufacturer is recalling thousands of cases of salad dressing distributed to major retailers over potential contamination from “foreign objects.”
The company, Irvine-based Ventura Foods, recalled 3,556 cases of the dressing that could be contaminated by “black plastic planting material” in the granulated onion used, according to an alert issued by the U.S. Food and Drug Administration.
Ventura Foods voluntarily initiated the recall of the product, which was sold at Costco, Publix and several other retailers across 27 states, according to the FDA.
None of the 42 locations where the product was sold were in California.
Ventura Foods said it issued the recall after one of its ingredient suppliers recalled a batch of onion granules that the company had used n some of its dressings.
“Upon receiving notice of the supplier’s recall, we acted with urgency to remove all potentially impacted product from the marketplace. This includes urging our customers, their distributors and retailers to review their inventory, segregate and stop the further sale and distribution of any products subject to the recall,” said company spokesperson Eniko Bolivar-Murphy in an emailed statement. “The safety of our products is and will always be our top priority.”
The FDA issued its initial recall alert in early November. Costco also alerted customers at that time, noting that customers could return the products to stores for a full refund. The affected products had sell-by dates between Oct. 17 and Nov. 9.
The company recalled the following types of salad dressing:
- Creamy Poblano Avocado Ranch Dressing and Dip
- Ventura Caesar Dressing
- Pepper Mill Regal Caesar Dressing
- Pepper Mill Creamy Caesar Dressing
- Caesar Dressing served at Costco Service Deli
- Caesar Dressing served at Costco Food Court
- Hidden Valley, Buttermilk Ranch
Business
They graduated from Stanford. Due to AI, they can’t find a job
A Stanford software engineering degree used to be a golden ticket. Artificial intelligence has devalued it to bronze, recent graduates say.
The elite students are shocked by the lack of job offers as they finish studies at what is often ranked as the top university in America.
When they were freshmen, ChatGPT hadn’t yet been released upon the world. Today, AI can code better than most humans.
Top tech companies just don’t need as many fresh graduates.
“Stanford computer science graduates are struggling to find entry-level jobs” with the most prominent tech brands, said Jan Liphardt, associate professor of bioengineering at Stanford University. “I think that’s crazy.”
While the rapidly advancing coding capabilities of generative AI have made experienced engineers more productive, they have also hobbled the job prospects of early-career software engineers.
Stanford students describe a suddenly skewed job market, where just a small slice of graduates — those considered “cracked engineers” who already have thick resumes building products and doing research — are getting the few good jobs, leaving everyone else to fight for scraps.
“There’s definitely a very dreary mood on campus,” said a recent computer science graduate who asked not to be named so they could speak freely. “People [who are] job hunting are very stressed out, and it’s very hard for them to actually secure jobs.”
The shake-up is being felt across California colleges, including UC Berkeley, USC and others. The job search has been even tougher for those with less prestigious degrees.
Eylul Akgul graduated last year with a degree in computer science from Loyola Marymount University. She wasn’t getting offers, so she went home to Turkey and got some experience at a startup. In May, she returned to the U.S., and still, she was “ghosted” by hundreds of employers.
“The industry for programmers is getting very oversaturated,” Akgul said.
The engineers’ most significant competitor is getting stronger by the day. When ChatGPT launched in 2022, it could only code for 30 seconds at a time. Today’s AI agents can code for hours, and do basic programming faster with fewer mistakes.
Data suggests that even though AI startups like OpenAI and Anthropic are hiring many people, it is not offsetting the decline in hiring elsewhere. Employment for specific groups, such as early-career software developers between the ages of 22 and 25 has declined by nearly 20% from its peak in late 2022, according to a Stanford study.
It wasn’t just software engineers, but also customer service and accounting jobs that were highly exposed to competition from AI. The Stanford study estimated that entry-level hiring for AI-exposed jobs declined 13% relative to less-exposed jobs such as nursing.
In the Los Angeles region, another study estimated that close to 200,000 jobs are exposed. Around 40% of tasks done by call center workers, editors and personal finance experts could be automated and done by AI, according to an AI Exposure Index curated by resume builder MyPerfectResume.
Many tech startups and titans have not been shy about broadcasting that they are cutting back on hiring plans as AI allows them to do more programming with fewer people.
Anthropic Chief Executive Dario Amodei said that 70% to 90% of the code for some products at his company is written by his company’s AI, called Claude. In May, he predicted that AI’s capabilities will increase until close to 50% of all entry-level white-collar jobs might be wiped out in five years.
A common sentiment from hiring managers is that where they previously needed ten engineers, they now only need “two skilled engineers and one of these LLM-based agents,” which can be just as productive, said Nenad Medvidović, a computer science professor at the University of Southern California.
“We don’t need the junior developers anymore,” said Amr Awadallah, CEO of Vectara, a Palo Alto-based AI startup. “The AI now can code better than the average junior developer that comes out of the best schools out there.”
To be sure, AI is still a long way from causing the extinction of software engineers. As AI handles structured, repetitive tasks, human engineers’ jobs are shifting toward oversight.
Today’s AIs are powerful but “jagged,” meaning they can excel at certain math problems yet still fail basic logic tests and aren’t consistent. One study found that AI tools made experienced developers 19% slower at work, as they spent more time reviewing code and fixing errors.
Students should focus on learning how to manage and check the work of AI as well as getting experience working with it, said John David N. Dionisio, a computer science professor at LMU.
Stanford students say they are arriving at the job market and finding a split in the road; capable AI engineers can find jobs, but basic, old-school computer science jobs are disappearing.
As they hit this surprise speed bump, some students are lowering their standards and joining companies they wouldn’t have considered before. Some are creating their own startups. A large group of frustrated grads are deciding to continue their studies to beef up their resumes and add more skills needed to compete with AI.
“If you look at the enrollment numbers in the past two years, they’ve skyrocketed for people wanting to do a fifth-year master’s,” the Stanford graduate said. “It’s a whole other year, a whole other cycle to do recruiting. I would say, half of my friends are still on campus doing their fifth-year master’s.”
After four months of searching, LMU graduate Akgul finally landed a technical lead job at a software consultancy in Los Angeles. At her new job, she uses AI coding tools, but she feels like she has to do the work of three developers.
Universities and students will have to rethink their curricula and majors to ensure that their four years of study prepare them for a world with AI.
“That’s been a dramatic reversal from three years ago, when all of my undergraduate mentees found great jobs at the companies around us,” Stanford’s Liphardt said. “That has changed.”
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