In this week’s edition:

• DEA Proposes Further Increase in 2024 Production Quotas
• Former US Attorneys Come Out Against Rescheduling
• New Workplace Protections Take Effect in California and Washington
• Alabama Court Temporarily Blocks Medical Licenses
• Ukraine Legalizes Medical Cannabis
• Theory Wellness Shifts to Employee Stock Ownership Plan

Federal

DEA Calls for Production of More Cannabis Compounds and Psilocybin – The Drug Enforcement Administration (DEA) has finalized significant increases in its 2024 production quotas for cannabis compounds and psychedelics. Responding to comments from registered manufacturers, the final order includes even higher production quotas for several Schedule I substances—including delta-9 THC and all other tetrahydrocannabinol–than initially proposed by the agency. According to the DEA, such increases were necessary to “allow for manufacturers to meet medical and scientific needs.”

Former FDA Official Weighs in on Rescheduling – In a recent interview, Howard Sklamberg, a former top official at the Food and Drug Administration (FDA), predicted that the DEA will reschedule cannabis to Schedule III in the first half of 2024. According to Sklamberg, rescheduling would not lead to increased federal enforcement on state cannabis programs as rescheduling “is a decision by the administration that cannabis is in fact less of a public health risk than people had thought.” Further, Sklamberg thought it unlikely the FDA would choose to enforce FDA regulations on state cannabis programs upon rescheduling. With the exception of the change to section 280E of the tax code to allow the deduction of normal business expenses, Sklamberg believes the change to a Schedule III drug would be “largely symbolic.”

Former US Attorneys Come Out Against Rescheduling – Nearly 30 former US attorneys sent an open letter to the DEA and Attorney General Merrick Garland expressing concern about the rescheduling of cannabis to Schedule III. Arguing that cannabis “has only become more dangerous, potent, and addictive,” and that cannabis sales remain a “profitable enterprise for drug cartels,” the letter urges the federal government to “consider the scientific research that demonstrates marijuana’s high addictive potential, its lack of safe medical use, and the impact rescheduling will have on prosecuting drug cartels when conducting your scheduling review.” As others have pointed out, however, many of these “arguments can be disputed with data,” which actually “supports the opposite of the attorneys’ claims.” For example, most state-legal cannabis programs have strict rules to ensure anyone with ties to a drug cartel cannot participate in the legal industry.

Biden Issues Pardons for Federal Cannabis Offenses – President Biden announced unconditional pardons for anyone who used, possessed or attempted to possess cannabis on federal lands, regardless of whether they have been convicted or charged. Although there are no prisoners currently in federal custody for simple possession, the announcement likely will affect thousands of individuals for whom charges or past convictions affect employment and housing opportunities. Further, the Biden administration hopes that the announcement “urge[s] governors to do the same with regard to state offenses.”

Ron DeSantis Discusses State Medical Cannabis Programs – In a recent campaign event, presidential candidate and Florida Gov. Ron DeSantis (R) claimed that Florida’s medical cannabis program is being used as a pretext for recreational use. Contrasting his recent support for higher licensing renewal fees, DeSantis also expressed support for a free market approach in the medical cannabis market, claiming that “you want there to be an open field and competition.” 

State

Multiple – As of the first of the year, new cannabis laws are taking effect in several states. In California and Washington, employers can no longer request information from an applicant about past cannabis use. Further, California employers are prohibited from penalizing employees over lawful cannabis use during their off hours. Meanwhile, in Oklahoma, cannabis businesses will now be subject to “secret shoppers” carrying out oversight activities. Other changes that have taken effect this year include an increase in recreational possession limits in Nevada, a new cannabis regulatory agency in Virginia and updated packaging requirements in Colorado.

AL – An Alabama court issued a temporary restraining order blocking the Alabama Medical Cannabis Commission (AMCC) from issuing medical cannabis dispensary licenses awarded in December. The underlying lawsuit—filed by several applicants who were not granted licenses—alleged that the AMCC committed several procedural violations and failed to adhere to its own scoring, averaging and ranking rules.

CA –  California Attorney General Rob Bonta filed an opinion at the end of December indicating that the state’s authorization of interstate commerce between cannabis businesses could result in significant legal risk to the State of California under the federal Controlled Substances Act (CSA), as some courts may find that the CSA preempts state law. The attorney general issued the opinion in response to a letter sent by the California Department of Cannabis Control on January 27, 2023, requesting a written opinion on this topic in light of Senate Bill 1326. That new legislation went into effect on January 1, 2023 and authorized California to work with other states to negotiate agreements allowing for commercial cannabis activity between California licensees and licensees in those other states. The bill requires either a change in federal law or a finding by the California AG in order to go into effect.

HI – Hawaiʻi Rep. Jeanné Kapela, who represents District 5 (Keaau-Kurtistown), co-authored an op-ed calling for the state legislature to pass a cannabis legalization bill in 2024. The piece references a poll from last year suggesting that the majority of Hawaiʻi residents support legalization of adult-use cannabis, and it highlights opportunities for economic development as well as mitigating health risks.

IL – Illinois regulators filed proposed amendments to address the tax treatment of cannabis and cannabis concentrate transferred from cannabis cultivators to cannabis infusers to be processed into cannabis-infused products on behalf of cannabis cultivators. The changes would also increase recordkeeping requirements for infusers maintaining agreements with cultivators to allow for certain tax exemptions.

NE – Activists in Nebraska are working to maintain momentum for a ballot initiative that would legalize medical cannabis in the state. Nebraskans for Medical Marijuana, the ballot committee leading the effort to put the legalization bill before voters in November 2024, hosted a year-end signing event at all five Wine, Beer and Spirits locations across the state. The campaign needs at least 87,000 verified voter signatures for their petitions by July 3, 2024, to qualify for the ballot. 

NJ – According to Jeff Brown, executive director of the New Jersey Cannabis Regulatory Commission, the state should be on track to reach $1 billion in sales in 2024. Reflecting on 2023, Brown said, “It was a successful year for New Jersey’s growing cannabis market, affirming the efficacy of our approach to building a market on a framework of social equity and public safety.” While regulators intend to engage in rulemaking to open up additional opportunities for licensees in 2024, there are still significant roadblocks, including the fact that two-thirds of municipalities across the state do not allow cannabis businesses to operate within their borders.

NV – A new law went into effect on January 1 that increases the possession and purchase limit for cannabis in Nevada from one ounce to 2.5 ounces. The amount of cannabis concentrates that adults can possess also doubled from one-eighth of an ounce to one-quarter of an ounce under Senate Bill 277. Adult-use cannabis retailers also no longer need a separate medical cannabis license to serve patients.

NY – Gov. Kathy Hochul (D) vetoed legislation at the end of December that would have allowed New York cannabis cultivation licensees to temporarily sell surplus cannabis to tribal retailers, as the state continues to struggle with a long-delayed market and limited number of dispensaries.

OH - Gov. Mike DeWine (R) said he was surprised that voters approved a cannabis legalization ballot initiative during his tenure, emphasizing the importance of respecting both the will of the people and the need for responsible implementation to ensure public protection.

Hemp

CO – The Colorado Department of Public Health and Environment, Division of Environmental Health and Sustainability adopted revised hemp rules as suggested by the Board of Health in mid-November of last year. The regulations, codified in 6 CCR 1010-24, govern the registration of hemp product manufacturers or storage facilities and safe-harbor hemp product manufacturers or storage facilities.

MO – Missouri lawmakers introduced bills in December 2023 aimed at regulating hemp-derived delta-8 THC, treating it similarly to cannabis. State Sen. Nick Schroer (R) filed the legislation, which would task the Missouri Department of Health and Senior Services with overseeing these products and imposing regulations akin to the state’s cannabis regulations. State Rep. Chad Perkins (R) introduced a companion bill in the House. These bills aim to address concerns about accessibility to minors, lack of labeling requirements and the absence of clear regulations governing delta-8 THC products.

International

Ukraine – Ukraine's parliament passed a law—set to take effect in six months—legalizing cannabis use for medicinal, scientific and industrial purposes. Recreational use remains illegal. The law, which includes strict controls enforced on production and distribution and requires a doctor's prescription for cannabis-based medicines, was introduced by Prime Minister Denys Smyhal to address post-traumatic stress disorder resulting from the conflict with Russia.

Business

Federal legalization of cannabis in the US could yield approximately $8.5 billion in annual tax revenue, according to the Tax Foundation. The proposed taxation model acknowledges the challenges in taxing cannabis due to varying product standards and recommends methods based on potency or weight for simpler application to new product categories. Despite ongoing federal illegality, discussions surrounding possible federal cannabis legalization or rescheduling continue.

POSaBit Systems Corp.– POSaBIT Systems Corp. has applied to switch its shares from the Canadian Securities Exchange to the TSX Venture Exchange (TSXV), aiming to expand its investor base. According to the payment technology company’s CEO Ryan Hamlin, the move to TSXV would create broader market exposure and enhanced trading liquidity. Separately, the company concurrently closed an offering of units to raise funds for debt repayment.

Theory Wellness–Massachusetts-based cannabis company Theory Wellness has shifted to an employee stock ownership plan (ESOP), making it the largest employee-owned cannabis company in the country and enabling tax-exempt status at the state and federal levels, potentially freeing the company from section 280E tax restrictions. Co-founder Nick Friedman highlighted the ESOP's structure, focusing on its similarity to a robust retirement plan and how it incentivizes employees by granting ownership based on tenure, emphasizing a shared vision and values between management and staff.

Medical

Past Decade See Tens of Thousands of Scientific Papers on Cannabis  – Over the past 10 years, researchers published more than 32,000 scientific items regarding cannabis, according to an analysis by cannabis advocacy group NORML. In 2023 alone, more than 4,000 papers were released. This comes despite cannabis’s continued classification as a Schedule I substance under the Controlled Substances Act.

Sports Doctors Support Cannabis’ Legalization for Medical and Adult Use – According to a study by the journal Translational Sports Medicine, most members of the American Medical Society for Sports Medicine believe that cannabis should be removed from the World Anti-Doping Agency’s list of prohibited substances. Representing a “cultural shift,” the study concluded that sports medicine providers are increasingly recommending cannabis and CBD products, including for chronic musculoskeletal and neuropathic pain.

Johns Hopkins to Study Thousands of Patients Using Cannabis – With a $10 million grant from the National Institute on Drug Abuse, Johns Hopkins University researchers plan to track 10,000 patients across the US in an effort to better understand the efficacy of cannabis as a medicine. While cannabis is currently available as in many states as a “therapeutic,” according to the researchers, the substance lacks “the quality of data that we have with other medicines.” Researchers will reportedly follow 10,000 individuals as new patients through at least a year of medicinal cannabis use.

Cannabis Shows Promise for Patients With ADHD, Study Indicates – A UK study published by Neuropsychopharmacology Reports analyzed the quality of life and safety outcomes over a 12-month period for 68 attention-deficit/hyperactivity disorder (ADHD) patients treated with cannabis-based medicinal products. The study’s findings demonstrated an improvement in quality of life, sleep quality and anxiety severity; however, because of limitations in study design, a causal relationship could not be determined.

Psychedelics

Jamaica – The Ministry of Industry and Investment recently established the Jamaica Psilocybin Industry Working Group (JPWG), chaired by Senator Saphire Longmore, MD, a consultant psychiatrist. The JPWG will study and recommend next steps to facilitate and encourage the growth and standardization of the country’s psilocybin industry. 

Oregon – This past December, Oregon Psilocybin Services promulgated new regulations on data collection and reporting, as required by SB 303 (recently enacted in 2023), as well as training program curriculum requirements. The new rules come after four hours of public hearings and more than 200 written public comments.

Dentons Speaks

Dentons partner Eric Berlin was recently quoted in two Law360 articles: “4 Cannabis Litigation Trends to Watch In 2024” (here) and “Will the DOJ Reschedule Cannabis in 2024?” (here).

Please click here for more information on the Dentons US Cannabis group.

Authored by associates Malina Dumas, Lauren Estevez, Jacob Raver and Margo Wilkinson Smith.