Between LinkedIn, Twitter, the media, and diehard marijuana investors, there is more noise and froth in the industry about a marijuana reschedule than I’ve seen since Washington and Colorado legalized it back in 2012. When speculation about the Feds starts to explode in the industry, I usually ignore most of it as fairly useless hearsay backed by a lot of hope, negativity, and/or hypotheticals.
This time, the tea leaves surround the number one question in the industry, will there be a 2024 marijuana reschedule from the Drug Enforcement Administration (DEA) on the back of the Department of Health and Human Services (HHS) schedule III recommendation? Namely, is a marijuana reschedule imminent that could change the entire course of success for the industry?
There are lots of lawyers, consultants, “industry experts”, and everything in between preaching that of course, the DEA will reschedule. This same crowd is also quite confident that there’s almost no downside to Schedule III at all (mainly relying on the fact that IRC 280E goes away, which is both true and huge), and that any possibility of a change in enforcement priorities by the DEA (or the Food and Drug Administration (FDA)) is unheard of at this point. Then there’s the other side of the coin with an entirely different group of stakeholders claiming that Schedule III is the death of the state-legal cannabis industry for a variety of reasons. And then you have your steadfast prohibitionists who are ready and willing to attack the scientific and medical findings of HHS to keep cannabis on Schedule I of the Controlled Substances Act (CSA).
So, what’s going to happen here? Who’s right amongst all of these stakeholders? Which Schedule III LinkedIn post or tweet is the accurate one? The truth is that no one knows yet and no one can predict the future either. Instead, the purpose of this post is to list out all of the potential outcomes of a marijuana reschedule (likely or not) with the hope that readers have a better understanding of all the worlds of possibility, not just those results that self-interested parties want or hope to occur.
- No Reschedule at All. Even I admittedly believe that the DEA will struggle to avoid rescheduling. Namely, because the scientific and medical findings of HHS are binding on the DEA per the CSA (and I personally think they’re persuasive). However, the reality is that the DEA could dodge a reschedule for a few reasons here:
- Independent Evaluation and Final Authority. DEA is only bound by HHS’s scientific and medical findings (and that’s it). Both HHS and DEA have to undertake an eight-factor analysis (8FA) to determine if a drug should be scheduled/which schedule it should go into. Per the CSA, the scientific and medical considerations are at factors 1 (actual/potential for abuse), 4 (history and current pattern of abuse), and 5 (scope, duration, and significance of abuse) of the 8FA. The other five factors are up for grabs accordingly based on independent analysis by the DEA, and the DEA has final authority on whether to reschedule or not anyway. DEA has always declined to reschedule marijuana, but it’s also never rejected (wholesale) an HHS recommendation before either.
- Legal Challenges. If the DEA decides to reschedule, I don’t think anyone would be surprised if drug warriors (and other groups of stakeholders) try to sue the DEA to overturn any resulting rule for alleged violations of the Administrative Procedure Act (APA). To (grossly) summarize, petitioners with standing can sue federal agencies for violations of the APA if agency action is inconsistent with the agency’s statutory authority, violates statutory procedural requirements, or is arbitrary and capricious. For example, Smart Approaches to Marijuana (SAM) is already pointing out that, in its opinion, the actual research done by HHS is insufficient and unfounded. Specifically, SAM takes the position that “this HHS recommendation is based on cherry-picked data and represents a weak and intellectually dishonest argument to reschedule marijuana”. SAM also highlights, among other attacks, that FDA (which is housed in HHS) out of nowhere deviated to an abbreviated two-part test (rather than the routine five-part test adopted by DEA in 1992)) to determine if marijuana has a currently accepted medical use (CAMU) for scheduling purposes, using data from medical marijuana states as evidence of CAMU (even though, in the past, FDA, hasn’t relied on that data since the states maintain different legal standards than the FDA for approved medical marijuana use/access, etc.). These apparent technicalities could be used against the DEA in a future legal challenge under the APA.
- International Drug Treaties. The U.S. is a party to the 1961 Single Convention on Narcotic Drugs. Per the CSA, where a drug is subject to control under the Single Convention, the DEA must schedule the drug in line with the Single Convention; marijuana is a drug listed in the Single Convention and arguably cannot be rescheduled to anything lower than Schedule II. The counter to this position sometimes is that the U.S. has been in violation of the Single Convention since 1996 when California passed the Compassionate Use Act regarding patient access to medical marijuana. However, states opting out of prohibition doesn’t equate to a DEA rescheduling in direct violation of an international treaty (even if DEA enforcement against state-legal operations is non-existent). Maybe the constitutionality of U.S. participation in the treaty relative to marijuana is up for debate, but no one knows if any such challenge would actually bear fruit.
- Schedule III Should Mean Prescription-Only Access and DEA Registrations, but Will it Actually Happen? On December 5 of last year, a variety of state governors wrote to President Biden, praising him for kicking off the potential rescheduling process and touting that state markets would really benefit from the move (essentially). However, I think Larry Houk of Hyman, Phelps, & McNamara put it best in one of his December blog posts about that letter, writing that “. . . the governors wrote as if rescheduling cannabis to schedule III will authorize unfettered adult access for medical and recreational use. It will not. While rescheduling cannabis to Schedule III would more closely align federal law with that of the 38 states that allow for some form of cannabis for medical use (depending upon the state), it would still conflict with the laws of the 23 states that legalize cannabis for recreational use. Obtaining cannabis as a Schedule III substance would require a prescription ‘issued for a legitimate medical purpose by an individual practitioner acting in the usual course of his professional practice.’ 21 C.F.R. § 1306.04. In other words, a prescription written by a DEA-registered, state-licensed practitioner. In addition, cultivators, manufacturers, distributors, and dispensers would have to obtain DEA registrations, create and maintain transaction records, file certain reports, and maintain adequate security. Federally rescheduling cannabis to schedule III would not create the unlimited public access the governors alluded to in their letter.” Larry’s analysis and conclusions should happen if marijuana is moved to Schedule III. Still, certain industry lawyers, experts, etc. claim that the DEA will not follow existing legal precedent and regulations for marijuana as a Schedule III because state-licensed markets are just “too big” to fail or be shut down in that way. Last time I checked though, you also could not freely buy a Schedule III controlled substance at a stand-alone store.
- Pharma Will Care (a Lot) or It Won’t (at All). This is one around which I’ve seen lots of debate. The pro-Schedule III crowd seems to routinely dismiss it out of hand. And maybe they’re right because cannabis, a natural product, cannot be patented under U.S. law (though plant-derived compounds may secure use patents). Only new marijuana strains/cannabinoids not found in nature would be eligible for a product patent, which prohibits anyone else from selling the resulting product for no less than 20 years. The drug approval process with FDA is also no picnic. It takes many millions of dollars and many years to get a drug to market. Still, pharma may be interested in this development. As detailed in “Marijuana as Medicine? The Science Beyond the Controversy”, the authors wrote “If cannabinoids seemed likely to fulfill important unmet medical needs, their development might be worth the financial risk. Pain relief represents such a potential market; in 1997 Americans spent an estimated $4.4 billion on prescription and over-the-counter pain relievers. Yet there is a longstanding need for medicines to treat both acute and chronic pain that are safe, non habit forming, and easy for patients to take. A cannabinoid medication with these attributes would be a welcome addition to existing therapies.” And what was one of the three medical indications for which HHS found that marijuana has a CAMU this time around? Pain. Don’t forget too that Pfizer acquired Arena Pharmaceuticals in 2022. One of Arena’s main focuses is cannabinoid-type therapies (and Pfizer’s not the only big pharma company to make a medical marijuana play in recent years). Even if pharma doesn’t care about a marijuana reschedule regarding the development of cannabinoid pharmaceuticals, it’s definitely gone on record (in at least one instance) as opposing marijuana’s liberation (namely for loss of revenue in the face of legalization), which could also come into play during or post-rulemaking by the DEA if there’s a reschedule.
- State-licensed markets live on Without Issue. My friend John Hudak (then with Brookings Institution) co-authored a great piece back in 2016 about how Schedule III could affect state markets. See here. John and his fellow author did a solid job of explaining why state-licensed markets would still live on post-reschedule–enforcement discretion from the Feds (namely, the executive branch). The only twist now is that, under President Trump, former U.S. Attorney General Jeff Sessions rescinded all marijuana-related enforcement guidance, including the 2013 Cole Memo (which propped many if not all state-licensed marijuana programs). The enforcement memo we have now (from 2018) just states, among other directives, that marijuana is a dangerous drug according to Congress. However, just because the old enforcement memos no longer exist shouldn’t mean anything one way or the other. Those memos weren’t law and they didn’t change the law; they told U.S. attorneys essentially how to do their jobs related to state-legal marijuana businesses. I still appreciate this Brookings article even though it was written before the universal recission of the federal marijuana memos because federal enforcement is what could rule the day here when it comes to this parallel pharmaceutical/adult use track system (if that’s what you can call it). And, again, no one can say with any degree of guarantee that the DEA, the DOJ (including getting a new “Garland Memo” to protect state markets), the executive branch, the FDA, etc. will or won’t do anything in the wake of a reschedule. If a reschedule occurs though it could very likely accelerate a cleaving of the current medical and adult use markets.
I don’t claim to know what will happen in the event of schedule III. I enjoy reading all of the speculation and hypotheticals like everyone else. However, I sincerely caution readers to consider all possibilities before making any cannabis business, investment, or regulatory decisions. Toward that end, generating a multi-faceted plan to deal with these many outcomes is wise. Both pretending to know the future and acting on it or just sitting on your hands for lack of foresight are not viable strategies for this potentially monumental change.