According to an August 29, 2023 letter, the Department of Health and Human Services (“HHS”) has recommended to the Drug Enforcement Administration (“DEA”) that cannabis be reclassified as a schedule III drug under the Controlled Substances Act (“CSA”). HHS based this recommendation on a Food and Drug Administration (“FDA”) review  of cannabis’s classification pursuant to President Biden’s executive order in October 2022.

The Key Impacts of Rescheduling

Rescheduled to schedule III would be monumental for state-legal cannabis businesses.  Although rescheduling would not federally legalize the state-legal programs, it would eliminate the 280E tax burden that currently applies to such businesses. We would also expect research on—and access to—cannabis-based medicines to increase significantly. 

Schedule I vs Schedule III

Cannabis currently is listed as a schedule I controlled substance under the CSA (i.e., deemed to have no medical value), and accordingly, the manufacture, sale, or possession of cannabis is federally illegal, even for personal medical purposes (unless pursuant to DEA registration for very limited purposes). Whereas schedule I substances are reserved for those substances with no accepted medical use, the abuse rate is the determinate factor in the scheduling of a substance in schedules II-V. 

Schedule III findings are as follows:

1. the drug or other substance has a potential for abuse less than the drugs or other substances in schedules I and II;
2. the drug or other substance has a currently accepted medical use in treatment in the United States; and
3. abuse of the drug or other substance may lead to moderate or low physical dependence or high psychological dependence.

The Rescheduling Process

To arrive at a schedule III finding, HHS, via the FDA, had to conduct a scientific and medical evaluation of cannabis, using a statutorily required eight-factor analysis. The DEA also conducts its own independent review of cannabis using this eight-factor analysis, but, unlike the FDA, it may also consider “all other relevant data”—an unrestricted term that, by definition, permits the DEA to look broadly outside the statutory limits placed upon the FDA. Now the DEA will review the FDA’s recommendations, its own findings, and the relevant facts to determine on its own the proper scheduling of cannabis.

The DEA’s authority to consider “all other relevant data” effectively permits it to adopt a different decision than the FDA based on its own analysis and related reasoning.  In the past, where DEA has not followed FDA recommendations, the DEA chose to be stricter than the FDA recommendation, not less strict. 

Of particular concern for the DEA in rescheduling cannabis is the 1961 Single Convention on Narcotic Drugs (the “Convention”), which was intended to codify various international drug treaties and which the U.S. ratified in 1967. Since 1975, the DEA has publicly interpreted the U.S.’s obligations under the Convention to limit cannabis to either schedule I or II under the CSA, a position it recently maintained in its 2016 cannabis rescheduling denial. We believe, however, that it is legally viable to DEA to reschedule to schedule III.

If the DEA chooses to reschedule cannabis to schedule III or otherwise, it will likely initiate complex administrative rulemaking proceedings under the Administrative Procedure Act (“APA”). The DEA would publish a proposed rule in the Federal Register along with supporting documents explaining why it believes cannabis should rescheduled. As part of that explanation, DEA would summarize its and the FDA’s eight-factor analyses and related conclusions. Thereafter, the public would have time to comment as well as time to request hearings on the record. Should the DEA agree to conduct hearings, this “hearing stage” would be governed by the Administrative Procedure Act (“APA”) and DEA regulations. 

Ultimately, an administrative law judge would consider the entire record and issue a decision, which is really a recommendation that the DEA Administrator considers for its Final Order, which can be challenged in court. There is a chance, however, that the DEA would issue the rule without the notice and comment period, relying on its authority to reschedule directly to comply with the Single Convention. Accordingly, rescheduling could take months or could be final within weeks.

With many unknowns remaining, the point is this:  today’s news is a beginning, not an end. Nevertheless, it is a historic moment in the regulation of cannabis and a positive sign for the future.