
- BENEFITS OF RESCHEDULING TO SCHEDULE III
- Medical Research: Rescheduling cannabis from Schedule I to Schedule III, IV, or V would undoubtedly facilitate medical research, relaxing the researcher certification and licensure requirements currently imposed on cannabis research. It’s important to note however that rescheduling isn’t a necessary prerequisite for developing much-needed cannabis derived pharmaceutical drugs — though rescheduling cannabis to Schedule III would make it considerably easier and cheaper to do so compared to the current pathway for developing these drugs, which requires both a DEA Schedule I license and compliance with cannabis-specific hurdles codified in state and federal law.
- Fair Taxation: Section 280E of the Internal Revenue Code prohibits existing cannabis businesses from deducting standard business expenses because their “trade or business . . . consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act).” Rescheduling cannabis to Schedule III would allow cannabis businesses to claim the same federal tax deductions that all other lawful businesses take.
- LIMITATIONS OF RESCHEDULING TO SCHEDULE III
- No Impact on Banking Access: While rescheduling would provide relief from IRC 280E, it offers very limited financial relief otherwise, having no positive impact on access to capital and/or financial services—basic business banking would continue to elude most of the industry. As such, any effort to reschedule “whole plant” cannabis should be combined with legislation to reform banking laws (ideally the SAFE Banking Act) in order to address this blind spot.
- No Impact on Criminal Penalties: Rescheduling would also do little to address federal criminal penalties for cannabis, which President Biden has called on Congress to reform.
- POTENTIAL RISKS OF RESCHEDULING TO SCHEDULE III
- Overview of Potential Risks: Rescheduling cannabis from Schedule I to Schedule III would be a long overdue reversal of the federal government’s position that cannabis (like other Schedule I controlled substances) has no accepted medical use. While such a reversal would be a welcome admission, it also permits the FDA to acknowledge the accepted medical use of “whole plant” cannabis and cannabis products (as well as any accompanying health claims, as an enforcement priority) for the first time — as opposed to just individual cannabinoids used as active ingredients in “small molecule” cannabis-derived drugs previously approved through the FDA’s existing new drug application (NDA) process. As discussed below, rescheduling would largely remove the DEA from cannabis enforcement and enable the FDA to effectively occupy the field of regulating interstate cannabis commerce almost exclusively under the rubric of its small molecule and botanical “drug” paradigms under the FDCA — unless additional statutory protections are enacted concurrently. The sad irony of opening up the regulated interstate market to medical cannabis through rescheduling is that the resulting application of the FDCA could lead to foreclosing access to the interstate market for the vast majority of state-licensed cannabis industry operators.
- FDA Regulation of Whole-Plant Cannabis Products as “Drugs”. The FDA exercises near-exclusive jurisdiction over the production, labeling, packaging, marketing, distribution and sale of “drugs” in the US (as the term is defined under the FDCA). “Explicit or implicit claims that a product containing cannabis (or a cannabis constituent) could treat disease, or even simply affect the functioning of the body, would turn that product into a ‘new drug’ that requires premarket approval from the FDA.”
- Regulation of Cannabis as a “Drug” Would Foreclose Access to Interstate Commerce. In contrast with the CSA, which imposes jurisdiction over acts affecting interstate commerce,
- Exclusive FDA Oversight Would Impose Insurmountable Compliance Costs for Existing Operators. Small businesses, MWBEs and social equity licensees are already struggling with access to capital and financial services. Compliance with the FDCA and FDA oversight would not be possible for most:
- Unfair Competition from the Pharmaceutical Industry. To date, Schedule I and II penalties have operated as formidable (though not insurmountable) barriers to entry for pharmaceutical companies exploring the development of cannabis-derived drugs. Even without the benefit of rescheduling the FDA has already approved one CBD-derived drug and two synthetic THC drugs. Removing those penalties could open the floodgates to new drug applications for much needed cannabis-derived drugs, but also rampant attempts to use new drug applications to fence-in and squat on specific cannabis constituents. Such attempts could prevent state-license cannabis operators from the interstate production and sale of whole plant products (on the grounds that they are unapproved “drugs”), and also foreclose alternate regulatory pathways to the interstate market such as the FDA’s “dietary supplement” designation.
- Ban on Interstate Sale of Cannabis-Infused Edibles. As stated above pharmaceutical companies could make novel medical claims about various cannabis constituents, invoking the FDCA’s new drug approval process and the FDA’s sole authority over “drugs,” making it potentially unlawful for a state licensed cannabis operator to sell their wares outside of their state. For example, once a cannabis constituent is deemed a “drug” under the Food Drug and Cosmetic Act, it may no longer be used as an ingredient in a food or beverage, and even without the “drug” designation, alternate regulatory pathways provided by the FDCA may not be readily available to cannabis-infused “edible” products:
- RESCHEDULING TO SCHEDULE III WITH GUARDRAILS: Carving “Whole Plant” Cannabis Products Out of the FDCA Definition of “Drug”
- Existing FDCA Categories Are Inadequate to Capture “Whole Plant” Cannabis. This is not only warranted given the potentially dire industry consequences outlined above, but also as a matter of regulatory clarity and consistency. “Whole plant” cannabis products require their own category because, even if the FDA deems them to be “drugs” under the FDCA, they would still fail to meet the requirements for FDA approval of either a small molecule drug or a botanical drug—potentially leading to the eventual exclusion of such “whole plant” cannabis products from lawful interstate markets:
- A Carve-out for “Whole Plant” Cannabis Products Improves Previous Industry Proposals Premised on Descheduling. Note that the proposed carve-out from the FDCA definition of “drug” is consistent with the position taken in the National Cannabis Industry Association Policy Council’s October 2019 white paper “Adapting a Regulatory Framework for the Emerging Cannabis Industry,” but offers a more comprehensive solution than the narrow carve-out proposed suggested in the white paper. The authors of the white paper prescribe a federal regulatory structure in the event cannabis is descheduled and removed from the DEA’s review entirely. The white paper thus suggests a carve-out permitting existing state regulatory agencies to police structure/function claims made by high-THC cannabis products (i.e., claims that make such products “drug” claims) and permitting such products to make dietary supplement-type claims for medicinal cannabis products, but would not exempt any “whole plant” cannabis products entirely from the category of “drugs” under the FDCA. The expanded carve-out proposed herein has more beneficial downstream effects, including obviating criminal prosecutions for the violations of the FDCA discussed above, and would apply to both medicinal and adult-use cannabis products.
- A Carve-out for “Whole Plant” Cannabis Products Doesn’t Preclude Pursuing Complementary Protective Measures. Some argue that the FDA is not actually interested in regulating “whole plant” cannabis products, and that this is much ado about nothing. If that is the case, one would expect the FDA to support the proposed statutory carve-out, so that the industry has the assurances of FDA non-intervention in writing which carries the force of law. Others argue that such a carve-out might prevent FDA from authorizing studies using “whole plant” cannabis, which is a legitimate concern; but this concern can likely be accommodated within the language of the carve-out itself. Still others, while acknowledging the potentially looming issues with FDA jurisdiction and enforcement, argue that obtaining executive agency guarantees of non-enforcement (ala the Cole Memo) may be sufficient on its own, or when combined with Congressional action to tie the purse strings on enforcing the FDCA against “whole plant” cannabis (ala the Rohrabacher Amendment). This is a viable alternative in the short term; however, executive agency forbearance does not offer a permanent solution, as Attorney General Sessions demonstrated when rescinding the Cole Memo.
Khurshid Khoja
Principal
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khurshid@greenbridgelaw.com
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