Next Steps in Cannabis Rescheduling: Insights from Cannabis Experts

Cannabis Rescheduling: What Schedule III Means for Industry

The recent HHS letter urging the DEA to reschedule cannabis from Schedule I to Schedule III has ignited excitement within the cannabis industry. However, it has also raised numerous questions for enthusiasts and industry professionals. Vicente LLP recently conducted a webinar, "Special Briefing on Cannabis Federal Scheduling Reform," featuring top cannabis lawyers and experts. Join us as we delve into the insights from this webinar, addressing your pressing questions about the future of cannabis rescheduling and its impact on the industry.

Q: What is the recent development in cannabis federal scheduling reform?

A: In a historic turn of events, the cannabis industry is poised to experience a transformation that could reshape its trajectory. Recent reports from Bloomberg News have unveiled a letter authored by Anne Milgram, a Drug Enforcement Agency administrator at the Department of Health and Human Services, advocating for the rescheduling of cannabis to a Schedule III drug under the Controlled Substances Act. This recommendation is founded upon a comprehensive Food and Drug Administration review of marijuana's classification, marking a significant step towards a more progressive approach to cannabis regulation.

Q: Why is this recommendation significant for the cannabis industry?

A: For years, cannabis has languished under the burden of strict regulations, notably classified as a Schedule I drug - the most restrictive category - alongside substances like heroin. This categorization has long hindered research, medical applications, and the growth of a legitimate industry. And while cannabis supporters and advocates are wary to start planning celebrations so soon, after years of failed promises and unremarkable progress at the federal level, if we continue down the path that the DEA set in motion with this recent update, it could be just the spark we needed to ignite the entire industry.

Q: What would Schedule III mean for cannabis?

A: Schedule III would represent a historic step in the right direction, moving the country away from prohibition, which has devastated countless lives, and instead adopting a modern, evidence-based and equitable approach to cannabis. It recognizes the medical safety and efficacy of cannabis, gaining greater public and government support. However, it's important to note that Schedule III wouldn't decriminalize cannabis or fully achieve critical criminal justice reform goals. It also does not make state operations legal, as enforcement guidance would still be needed.

Q: What are the potential implications of Schedule III?

A: Schedule III would have broad implications for federal policy in areas such as employment, taxes, and more. It would promote research, support an industry generating billions of dollars for the American economy, and create hundreds of thousands of American jobs. However, it wouldn't change current FDA enforcement priorities.

Q: What are the next steps in the rescheduling process?

A: The next steps involve the Drug Enforcement Agency (DEA) reviewing the evidence and HHS's recommendation. If there is substantial evidence that cannabis should be moved to Schedule III, the DEA will initiate proceedings. If not, it will enter a final order denying the scheduling request. Following this, there will be a rulemaking process, public comment period, and the issuance of a final rule. Judicial review is also possible.

Q: When can we expect a decision from the DEA?

A: Currently, we are waiting for the DEA's determination regarding HHS's recommendation. The DEA generally takes 30 to 90 days to publish a proposed rule and request comments. The timeline for the final rule is uncertain but could be as early as the end of 2023. Importantly, the DEA has never ignored an HHS scheduling recommendation before.

Q: How does Schedule III impact taxes and capital markets?

A: Schedule III would remove cannabis from the purview of 26 U.S.C.§ 280E tax penalty, which would have a significant positive impact on current and future cannabis businesses, as it would bring much needed financial and tax relief to the industry. Additionally, this change is expected to impact general capital markets positively. However, it would not impact the inability to list (plant-touching) on major U.S. exchanges. This change may empower more financial institutions and service providers to re-evaluate their participation in the industry, although legal protections for state operators would still be a barrier.

Q: What about interstate commerce and FDA oversight?

A: Schedule III would not legalize interstate commerce for existing businesses, as they are not FDA compliant and likely don't comply with Schedule III requirements. States would continue to have the authority to prohibit the interstate transfer and sale of federally illegal cannabis products. Congressional reform might be necessary to address these issues.

Q: How does this impact criminal justice reform?

A: While Schedule III represents incremental progress and sends a strong message that cannabis is a lower enforcement priority, it's important to note that it still subjects cannabis to federal criminal law. States can use discretion in not prosecuting some or all marijuana-related offenses, but there are no real corresponding state "Trigger laws."

Q: What lies ahead for congressional reform and potential enforcement memos?

A: Congress has the power to amend the CSA to reschedule or deschedule cannabis, and recent proposals support social equity and states' rights. SAFER Banking and other reforms are more likely to be successful with Schedule III. There's also the possibility of a new Justice enforcement memo that could de-prioritize certain activities.

Q: What can we expect in terms of state reforms?

A: Momentum for state reforms is growing, with several states like Maryland, Delaware, Hawaii, New Hampshire, Louisiana, South Carolina, and Pennsylvania considering various cannabis-related initiatives, including legalization, equity, and improved regulations. State-level actions can complement federal changes and create a more balanced and equitable cannabis industry.

Proud to Work in Cannabis

Overall. the recent developments in cannabis federal scheduling reform signal a positive shift for the industry. While challenges and uncertainties remain, there is growing momentum for change at both the federal and state levels. Professionals in the cannabis industry and those interested in its future should continue to stay informed and engaged as we witness these historic changes unfold.