Rolling With The Changes: Navigating Marijuana Rescheduling

President Donald Trump recently announced his plans to make a decision in the coming weeks regarding the possibility of rescheduling marijuana under the Controlled Substances Act (CSA).

This renewed focus comes more than a year after the Biden administration proposed a reclassification of marijuana. In October 2022, President Biden asked the Attorney General and the Secretary of Health and Human Services (HHS) to launch a scientific review of how marijuana is scheduled under federal law. In August 2023, based on a scientific and medical evaluation, HHS recommended to the Drug Enforcement Agency (DEA) that marijuana be rescheduled from Schedule I to Schedule III.

In May 2024, following this HHS determination, the Department of Justice (DOJ) submitted a proposed regulation to reschedule marijuana from Schedule I to Schedule III. Strong public interest resulted in over 40,000 comments, with a significant number appearing to support rescheduling or descheduling. Numerous parties also requested a hearing, which the DEA initially scheduled for December 2024, but was later delayed. DEA was still reviewing the issue of rescheduling marijuana when President Trump took office, prompting a re-evaluation of federal marijuana policies.

This alert provides an overview of the regulation of controlled substances, outlines the rescheduling process for these substances and explores the implications of reclassifying marijuana as a Schedule III drug.

The Regulation of Controlled Substances

Controlled Substances are placed into one of five schedules in the CSA based upon the substance's medical use, potential for abuse, and safety or dependence liability. This scheduling system helps the federal government control the manufacturing, distribution, and use of these substances. A Schedule I substance, such as marijuana, is considered to have a high potential for abuse, has no currently accepted medical use in treatment in the United States, and lacks an accepted safety profile for use under medical supervision. Schedule II substances, like cocaine and methamphetamine, have recognized medical uses but also a high potential for abuse. Schedules III, IV and V include substances with progressively lower potential for abuse and greater accepted medical use.

DEA and HHS are the primary agencies responsible for overseeing and enforcing regulations pertaining to marijuana. DEA is responsible for determining the scheduling of controlled substances and enforcing compliance with these regulations. This includes the registration of individuals and entities involved in the handling of these substances, such as manufacturers, distributors and healthcare providers, as well as overseeing recordkeeping, reporting and security measures designed to prevent misuse and diversion. Comparatively, HHS is responsible for conducting scientific and medical evaluations of substances to determine their appropriate scheduling under the CSA.

This collaborative approach between DEA and HHS ensures that decisions regarding controlled substances are informed by both legal and medical considerations, balancing public health interests with the need to prevent drug abuse and protect the public at large.

The Rescheduling Process

The process of rescheduling a substance under the federal CSA is complex and time-consuming, involving several steps that adhere to "formal rulemaking" requirements. This includes a public comment period and the potential for a hearing before an Administrative Law Judge. Additionally, there may be delays or challenges to the proposed rule that can further complicate the process.

Under the CSA, Congress has granted the Attorney General, the head of the DOJ, the authority to schedule, reschedule, and deschedule substances, move them between schedules, or deschedule them entirely. This authority is delegated to the DEA, which operates within the DOJ. DEA, and is responsible for determining the scheduling of a substance based on its medical use, potential for abuse, and associated safety or dependence risks

Before DEA can propose any scheduling changes, it must first request a scientific and medical evaluation from HHS regarding the substance in question, along with a recommendation for its appropriate schedule. Determinations made by HHS are binding on DEA at the proposal stage and are given significant weight when DEA finalizes its decision. Following this, if DEA agrees with HHS's recommendation, it publishes a notice of proposed rulemaking in the Federal Register to solicit public comments. After considering these comments and, if necessary, conducting a hearing, DEA will issue a final rule in the Federal Register, which will establish the new scheduling status of the substance.

Overall, DEA has final authority with respect to rescheduling and will consider factors such as the history of abuse (e.g., scope, duration, patterns, etc.), the relative potential for abuse and the risk to public health. DEA will also consider any scientific evidence (e.g., pharmacological effect, physiological dependence, etc.) regarding marijuana, among other factors.

Implications of Rescheduling

Though rescheduling marijuana from a Schedule I to a Schedule III controlled substance would not legalize its recreational use nationwide (i.e., the manufacture, distribution, and possession of marijuana would remain subject to federal laws and applicable state laws), it would have several impacts on the industry including:

• Research and Pharmaceutical Development: Rescheduling marijuana to a Schedule III controlled substance would effectively reclassify marijuana as having a moderate to low potential for dependence with a lower abuse potential and would acknowledge that marijuana has or may have a currently accepted medical use. This could facilitate more extensive research and development in the pharmaceutical industry and, in turn, allow for a broader exploration of marijuana's therapeutic benefits and potential applications in medicine.
• Intellectual Property: Rescheduling would likely facilitate greater research and development in marijuana-related innovations, leading to an increase in patent filings for new strains, cultivation methods and marijuana-derived products. Rescheduling could also result in more businesses securing trademarks for their brands, enhancing consumer recognition and protection against infringement.

• Tax Implications: State-legal cannabis businesses might be able to claim standard business tax deductions currently prohibited under Section 280E of the federal tax code. Should Congress repeal or favorably amend Section 280E, deductibility of business costs associated with cannabis businesses (such as rent, salaries, advertising, utilities, etc.) may be positively impacted.
• Banks and Financial Institutions: Federal anti-money laundering laws criminalize the handling of proceeds derived from marijuana manufacturing and sales in violation of the CSA. The rescheduling of marijuana under the CSA to a lower-risk category may increase marijuana businesses' access to financial services, though banks and financial institutions may still be hesitant according to a Congressional Research Service August 2024 report.
• Labor and Employment: Rescheduling could lead employers to reassess their drug testing policies and the treatment of off-work marijuana use among employees to ensure there is a careful balance between compliance, addressing concerns over safety and employee rights.
• Criminal Consequences: Marijuana is currently a Schedule I substance under the CSA, meaning the manufacture, distribution and possession of marijuana is a federal crime punishable by fines and imprisonment. While marijuana would still be federally controlled, criminal penalties for Schedule III violations would be less severe than for Schedule I offenses.
• Alignment With State Law: Rescheduling could align federal policy with that of many states. For example, despite setbacks in some states, nearly all states have allowed medical marijuana use, with many also legalizing recreational use for adults.

Next Steps

While the Trump administration has expressed openness to relaxing regulations surrounding marijuana, there is significant opposition that cites concerns about marijuana's abuse potential and public safety. It will be important to assess and prepare for any potential impact the rescheduling of marijuana under the CSA would have on your business. Buchanan's experienced FDA & Biotechnology Team, Cannabis Industry Group, Life Sciences Industry Group and Government Relations professionals are here to help.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.