and Richard Blau
Recently, the Drug Enforcement Administration (DEA) took a significant step in the ongoing dialogue about marijuana regulation in the United States by publishing a Notice of Proposed Rulemaking to reschedule marijuana from a Schedule I controlled substance to Schedule III under the Controlled Substances Act (CSA). This proposed change marks a monumental shift in federal drug policy, reflecting evolving perspectives on marijuana’s medical utility and safety profile.
As part and parcel of the notice of proposed rulemaking process, the language of the proposed rule was released along with a call for public comments by the U.S. Department of Justice (DOJ). This routine procedure includes gathering facts and expert opinions on various topics, such as different forms, formulations, and delivery methods of marijuana; dosage and concentration information; data on constituents, routes of administration, and impact of Delta-9 THC potency; and the scope, duration, and significance of marijuana abuse. Additionally, stakeholders are invited to comment on the practical consequences of rescheduling marijuana to Schedule III under the relevant statutory frameworks, the economic impact of the proposed rule, and how rescheduling may impact “small entities.”
In this article, we will explore the remaining regulatory hurdles before this change can be finalized, examine the potential implications for marijuana-related businesses, and discuss other relevant developments.
Understanding the Scheduling System
The CSA classifies drugs and other substances into five schedules based on their potential for abuse, medical use, and safety or dependence liability. Currently, marijuana sits in Schedule I, a category reserved for substances with high potential for abuse, no accepted medical use, and a lack of accepted safety for use under medical supervision. Moving marijuana to Schedule III would signify recognition of its medical benefits, lower potential for abuse, and established medical application.
The Rulemaking Process and Next Steps
- Public Comment Period: As mentioned, the notice of proposed rulemaking includes a call for public comments on various aspects of the proposed rescheduling. During this period, which lasts for 60 days, stakeholders—including researchers, healthcare professionals, public interest groups, and the general public—can submit their views, scientific evidence, and relevant information in response to the DOJs specific requests. These requests cover a range of topics, from different forms, formulations, and delivery methods of marijuana to the economic impact of the proposed rule and its effects on small entities. The current public comment period will conclude on July 22.
- Review of Comments and Evidence: Following the public comment period, the DEA, along with the U.S. Department of Health and Human Services (HHS) and the U.S. Food and Drug Administration (FDA), will review the comments and any new scientific data submitted. This comprehensive assessment ensures that all perspectives and potential impacts are thoroughly considered.
- Final Rule Issuance: If the DEA, in consultation with the HHS, determines that rescheduling is justified based on the evidence and public input, it will proceed with issuing a final rule. This rule will be published in the Federal Register and will include the DEA’s responses to significant comments and the rationale behind the decision.
- Congressional Review Period: The final rule is subject to a congressional review period. During this time (generally 60 legislative days), Congress could disapprove the rule under the Congressional Review Act. If Congress does not act to overturn the rule, it will go into effect at the end of the review period.
- Research and Development: Rescheduling would ease some regulatory barriers that currently hinder research into marijuana’s medical benefits. Pharmaceutical companies and other research institutions could conduct studies more freely, potentially leading to new marijuana-based treatments and products.
- Federal Taxation: Under current law, marijuana businesses are subject to Section 280E of the Internal Revenue Code, which prohibits businesses from deducting common business expenses from gross income if their business involves trafficking in Schedule I or II substances. Such expenses include advertising, wages and salaries, and travel, to name a few. This prohibition often results in a substantial tax liability for a marijuana-related business, even if they would otherwise be operating at a loss. Moving marijuana to Schedule III would lift this restriction, allowing businesses to take these deductions and potentially increase profitability.
- Banking and Financial Services: Marijuana’s current Schedule I status creates significant challenges in accessing banking services, leading many businesses to operate on a cash-only basis. Rescheduling to Schedule III would likely mitigate some of these issues, as financial institutions would perceive less risk in serving these businesses.
- Interstate Commerce: While rescheduling could positively impact research, taxation, and banking, it is important to note that state laws regarding marijuana will still play a significant role. Interstate commerce involving marijuana will remain complex, as individual states maintain their own regulatory frameworks.
- Insurance and Investment: The reclassification could also make marijuana businesses more attractive to insurers and investors. Reduced regulatory risk and increased acceptance of marijuana-related activities could lead to more favorable insurance premiums and greater investment opportunities, fostering industry growth and innovation.
- Federal vs. State Law: Many states have legalized marijuana for recreational use independently of federal law. Rescheduling may influence state regulations, but it will not automatically alter the legal status of recreational marijuana in states where it is not yet legal. One state where the legalization of recreational marijuana is in the spotlight is Florida, particularly with Amendment 3, the Marijuana Legalization Initiative, set to appear on the November ballot as an initiated constitutional amendment. The initiative would permit adults over the age of 21 in Florida to legally possess up to three ounces of marijuana or up to five grams of marijuana concentrate for recreational use. Additionally, existing Medical Marijuana Treatment Centers (MMTCs) would be authorized to sell marijuana to adults for personal use. Furthermore, the initiative would allow the Florida Legislature to provide by state law for the licensure of entities other than existing MMTCs to cultivate and sell marijuana products.
- Interstate Commerce: Transportation of marijuana across state lines remains illegal if it involves moving from a state where it is legal to a state where it is not.
- Possession and Use: Federal laws would still prohibit recreational use, possession, and distribution, even if not actively enforced in states with legal recreational use.