July 4, 2024

Current Cannabis Licensees

The Drug Enforcement Agency’s (“DEA”) proposed rule to reschedule marijuana from Schedule I to Schedule III marks the biggest shift in federal marijuana policy since the Controlled Substances Act (“CSA”) of 1970 was signed, thereby placing marijuana in Schedule I  with no currently accepted medical use (“CAMU”) and a high potential for abuse. Thus, for the last half a century, marijuana (cannabis) has been placed in the most severe Schedule, right alongside heroin and LSD.

As the midmost classification, Schedule III drugs are those substances with a “moderate to low potential for physical and psychological dependence.” Thus, Schedule III drugs are still highly regulated yet, they can be prescribed by a medical practitioner. Although drug advocates and anti-marijuana groups both criticize the rescheduling (instead of descheduling) decision for various reasons, nonetheless, this is a historic time in the course of U.S. drug policy.

Now, until July 22, 2024 interested parties are able to submit public comments to Docket No. DEA-1362 and those that qualify may request a hearing. To date, halfway through the comment period, concerned citizens and groups have collectively submitted over 20,000 comments, and many more are expected in the remaining days.  Only after comment review, potential amendments, potential additional comments, and public hearings before an Administrative Law judge or litigation, will any final rules be adopted. The process should create a “robust administrative record” until the DEA Administrator adopts a final rule.

What remains to be seen is exactly what this all may mean for current cannabis operators, particularly in states where the plant is already an adult-use recreational product, in addition to a medical product. Could this shift be a stepping stone into the federal adult-use market – a gateway to get marijuana regulations into play through the medical route like every state has done independently?

While all of this develops it is not currently known all of the impact, however, what we do know, we explore below: the changing legal landscape around marijuana policy, potential effects (and lack thereof) of rescheduling on medical marijuana operators, as well as the argument for descheduling and ending discrimination against Cannabis L. Sativa.

I. How Does Rescheduling Change the Legal Landscape?

While DEA’s rescheduling decision provides relief in the form of federal policy from the stigma and burdens of Schedule I, what does it really mean for individual cannabis users and commercial cannabis operators across the United States?

At this juncture, legal practitioners largely agree that rescheduling to Schedule III will certainly have three important effects: (1) alleviate the tax burdens of IRS Code Section 280E, which only apply to Schedule I and Schedule II substances, (2) lead to more demand for marijuana research, and (3) legalize certain medical marijuana manufacturing and possession.

Despite these very valid achievements, a viable legal business model under Schedule III remains elusive. Below, we explore the following questions: what changes may occur with medical marijuana prescription access, how state regulated cannabis adult use programs may change, and will Schedule III bring interstate commerce for marijuana. Particularly unfortunate is that rescheduling will not change criminal penalties for cannabis possession, sales or transportation.

A. Medical Model Under Schedule III.

The DEA recently announced that “if the transfer to Schedule III is finalized, the regulatory controls applicable to Schedule III controlled substances would apply, as appropriate, along with existing marijuana-specific requirements and any additional controls that might be implemented, including those that might be implemented to meet U.S. treaty obligations.”[4]

Further, if the transfer to Schedule III is finalized, any drugs containing marijuana will be subject to the applicable prohibitions in the federal Food, Drug, and Cosmetic Act, enforced by the Food and Drug Administration (“FDA”).

Accordingly, even with this federal policy shift, the conflict between state and federal law will likely not shrink but rather grow, with increasing tension over supremacy by the federal agencies (DEA, HHS, FDA).

1. Medical Marijuana Access Could Be Significantly Altered by CURES Requirements.

The Controlled Substance Utilization Review and Evaluation System (“CURES”) is a DOJ-run database of Schedule II, Schedule III, Schedule IV and Schedule V controlled substance prescriptions dispensed in each state, whose aim is to simultaneously serve the public health, regulatory oversight agencies, and law enforcement.

In all states nationwide, licensed health care practitioners who are authorized to prescribe Schedule II through Schedule V controlled substances are required to register for access to CURES upon issuance of a Drug Enforcement Administration Controlled Substance Registration Certificate. California licensed pharmacists must also register for access to CURES upon issuance of a Board of Pharmacy Pharmacist License.

Here, if federal policy rescheduled cannabis from Schedule I to Schedule III, medical practitioners prescribing marijuana may be required to comply with the reporting requirements of CURES. Additionally, in states like California, where there are dispensaries that sell medical marijuana, dispensaries may also have to comply with CURES and/or face violations if dispensing medical marijuana is then in violation of Schedule III rules and regulations.

2. Interstate Business Opportunities Under Schedule III.

A recent interview with the current U.S. drug policy chief indicated that opportunities for marijuana interstate commerce may be available in the near future – “We do know the drugs that are Schedule III are in legitimate interstate commerce within the federal system.”

B. Current Operators – State Regulated Adult Use Cannabis Will Remain Illegal under Federal Law.

Notwithstanding the eagerness to participate in interstate commerce, until further clarification from the DEA, almost all or all state licensed dispensaries (whether medical or adult- use) would not be in compliance with Schedule III.

Theoretically, current state-run cannabis programs operations will remain unchanged on a day to day basis and rescheduling will not bring them into compliance with federal law. In fact, this federal-state cannabis policy gap will very likely need to be remedied by Congress, either before or after the federal rescheduling reform is effectuated.

II. The Argument for Descheduling and Ending Discrimination Against Cannabis L. Sativa.

Under the CSA, the Attorney General has control of the Schedule of Controlled Substances. Yet, Congress has the power to deschedule marijuana, as it did with hemp. More specifically, Congress arguably has a lot of clean-up to do with regard to the arbitrary and capricious distinction between “Hemp” and “Marijuana.” This tension will only be exacerbated with the shift from Schedule I to Schedule III.

A. Congress’s Removal of Hemp From the CSA Highlights the Need for Hemp and Marijuana to be Appropriately Regulated.

Providing little to no comfort to the industry, the federal government recently fumbled cannabis policy with the 2018 Farm Bill and the removal of hemp-derived CBD from Schedule I, without an enforcement or regulatory scheme. Then, the FDA’s inaction for over five years to regulate these products led them to proliferate nationwide, nearly unregulated, leaving it up to the individual states to pass legislation in order to protect public health. Eventually, the FDA simply threw in the towel – announcing in 2023 that “a new regulatory pathway for CBD is needed” and urging Congress to pass legislation that regulates CBD.

Thus, the legal landscape around hemp and marijuana has become increasingly confusing for consumers, practitioners and particularly for regulators, including law enforcement. Given that Congress made this change, only Congress has the power to truly change this.

B. Drug Trafficking Penalties Will Remain, Yet Interstate Commerce May Be Lawful – Confusion Will Abound.

Vice President Kamala Harris recently espoused that “nobody should have to go to jail for smoking weed,” however, it is important to note that the shift to Schedule III would do nothing to change the fact that current cannabis state operators are still “illegal” under federal law, and legal ramifications for personal recreational use will continue to exist.

Specifically, the DOJ has warned that  (1) “if marijuana is transferred into Schedule III, the manufacture, distribution, dispensing, and possession of marijuana would remain subject to the applicable criminal prohibitions of the CSA” and (2) marijuana would remain subject to the limitations within the Food, Drug, and Cosmetic Act.”

Consequently, without further policy changes, federal drug trafficking penalties for marijuana, only now under Schedule III, will remain. Importantly, mandatory sentence minimums will also remain unchanged – all marijuana related activities are currently pegged to the quantity of the marijuana at issue in the crime.

Unfortunately, the move to Schedule III without additional reforms, would not decriminalize marijuana as Joe Biden promised in his campaign, nor would it lessen the hardships faced by the past five decades of criminalization of marijuana.

On the other hand, a move for descheduling would remove all criminal penalties and, if passed together with responsible regulations, would allow for lawful interstate commerce in some capacity.  Descheduling would also further have the benefit of allowing both hemp and cannabis to be acknowledged as the same species of plant and thus, remove the ultra complicated distinction in rules and regulations. Descheduling would further empower state governments to consolidate their hemp and cannabis rules and regulations.

III. Conclusion.

Without further reforms, rescheduling is seen as a “peripheral change” and the federal government will, yet again, try to draw arbitrary lines where there are none, and without a clear federal regulatory framework to ensure enforcement.

What the country actually needs is a thoughtful framework around marijuana and hemp that speaks to each other, promotes public safety and public health, and also supports notions of equity. At this point, what we know is that “Congress made this mess, and only Congress can clean it up.”