In this week’s edition:

• DEA Intends to Reschedule Cannabis to Schedule III
• Opponents of Legalization Raising Funds to Challenge Rescheduling
• FL Governor Planning to Get Involved in Defeating Cannabis Ballot Initiative
• GA Limits Sale of Hemp Products to Adults Over Age of 21
• Supreme Court to Hear Case on False Advertisement of Hemp-Derived CBD Product
• Cannabis Industry to Add $112.4 Billion to US Economy in 2024

Federal

U.S. Drug Enforcement Administration Intends to Move Cannabis to Schedule III – Marking a potentially significant shift in American drug policy with widespread implications, the Drug Enforcement Administration (DEA) has publicized its intention to reschedule cannabis to Schedule III of the Controlled Substances Act—in agreement with the recommendation of the U.S. Department of Health and Human Services announced last August. “Today, the Attorney General circulated a proposal to reclassify marijuana from Schedule I to Schedule III,” Justice Department director of public affairs Xochitl Hinojosa said in a statement. “Once published by the Federal Register, it will initiate a formal rulemaking process as prescribed by Congress in the Controlled Substances Act.” For more detail, see Dentons’ take on this exciting news and refresh yourself on the 10 common misconceptions related to rescheduling (here).

Congressional Research Service Outlines Legal Consequences for Cannabis Rescheduling – In an early May report, congressional researchers wrote that cannabis rescheduling from Schedule I to III would enable state-licensed cannabis businesses to access federal tax deductions and ease barriers to cannabis research, but that it would not federally legalize cannabis or otherwise align state-regulated markets with federal law. The researchers also noted that the potential reclassification would not impact a long-standing congressional appropriations rider that prevents the Justice Department from using funds to interfere in state medical cannabis programs.

Unclear Whether Second Term Trump Administration Would Block Cannabis Rescheduling – According to a recent note posted by TD Cowen’s Washington Research Group, cannabis rescheduling may depend on the results of the next presidential election. According to historical standards, it would be “unusually fast” for the DEA to issue a final rule rescheduling cannabis before the upcoming election. And if former President Donald Trump succeeds at the ballot box, he could block any final rule. However, the note stated that it could also see the former president allowing the change to happen “to eliminate the political headache, though we concede it is a close call.”

DEA Administrator Milgram Reportedly Not the Signatory on Rescheduling Decision – Kevin Sabet, president of Smart Approaches to Marijuana (SAM), is claiming that Administrator Anne Milgram did not sign the DEA’s recent landmark decision to initiate the rescheduling of cannabis to Schedule III. Even if true, the significance (legal or otherwise) of Sabet’s claim remains uncertain. After the rescheduling announcement, SAM promptly circulated a fundraising email announcing the establishment of a “Rescheduling Legal Defense Fund” to be used “to support [SAM’s] challenges of marijuana laws and regulations, specifically marijuana’s Schedule III recommendation.”

National Conference of State Legislatures Pushes DOJ to Prioritize Cannabis Rescheduling – In a recent letter, the National Conference of State Legislatures (NCSL) urged Attorney General Merrick Garland and DEA Administrator Anne Milgram to prioritize the removal of cannabis from Schedule I of the Controlled Substances Act. Representing state legislatures nationwide, the NCSL highlighted the negative impacts of cannabis’ Schedule I status on state-legal cannabis use and businesses, including hampered research, restricted access to the financial system and increased risks due to cash-only transactions.

Expectations Mount for New “Cole Memo” to Accompany Cannabis Rescheduling – Amid rising anticipation for updated federal guidance on cannabis enforcement priorities, former U.S. Deputy Attorney General James Cole, known for his earlier memo on prosecutorial discretion, suggested that a broadening of protections for state cannabis markets could be on the horizon, potentially including authorization of interstate commerce. The so-called Cole memo was formally rescinded under the Trump administration.

Congressional Democrats Reintroduce Cannabis Legalization Bill – Senate Majority Leader Chuck Schumer (D-NY), along with Senate Finance Committee Chairman Ron Wyden (D-OR) and other Democratic senators, have reintroduced a bill aimed at federally legalizing cannabis: the Cannabis Administration and Opportunity Act (CAOA). In communicating with the press, Sen. Schumer emphasized the bill’s focus on ending federal prohibition while prioritizing safety, research, workers’ rights and restorative justice, and highlighting the need to address over-criminalization, particularly in communities of color. Sen. Wyden stressed the bill’s intent to provide states with tools for effective implementation of their chosen cannabis laws.

State

AR – Arkansas’s Alcoholic Beverage Control Division recently revoked the license of a medical cannabis retailer (Green Springs Medical Marijuana Dispensary), the first such revocation since medical cannabis sales became legal in the state five years ago. Owner Dragan Vicentic intends to appeal the decision to the agency’s board, allowing the retailer to continue operations during the appeal process. The revocation stems from more than 50 claimed violations and warnings over the past four years, with the most recent being the alleged the sale of over 1,800 expired products.

CA – Last month, cannabis retailer, Ctrl Alt Destroy Inc., filed a lawsuit against California Attorney General Rob Bonta (D) and the state Department of Cannabis Control (DCC) Director Nicole Elliott, challenging certain provisions of the state’s Medicinal and Adult‐Use Cannabis Regulation and Safety Act. The law mandates labor peace agreements between dispensaries and unions to obtain a license, which the retailer alleges violate the Fifth and 14th Amendments of the U.S. Constitution. The company is arguing that these provisions give undue leverage to labor organizations during negotiations and also contends that the National Labor Relations Act preempts the provisions at issue.

FL – Florida Gov. Ron DeSantis (R) is actively opposing adult-use cannabis legalization in the state, expressing concerns about its potential negative effects on the state's quality of life, economy, and public health. Despite his stance, recent polls indicate significant support for the ballot measure, which is backed primarily by existing medical cannabis businesses.

HI – After an unsuccessful attempt to legalize adult-use cannabis in Hawai’i, Gov. Josh Green (D) is proposing to expand access to medical cannabis by allowing its use for any health condition with a doctor-approved registration card. This proposed change aims to make cannabis more accessible while ensuring the safety of children. Although Gov. Green supports adult-use legalization, he hasn’t committed to pursuing it in the next legislative session. Currently, Hawai’i’s medical cannabis program is limited to patients with serious qualifying medical conditions, serving only approximately 2.2% of the state’s population.

IL – The Pritzker Administration and the Illinois Department of Financial and Professional Regulation (IDFPR) have awarded 35 additional Conditional Adult Use Dispensing Organization Licenses to applicants meeting social equity criteria, with a total of 48 new conditional licensees expected to be issued soon. These licensees have 365 days to build their dispensaries and gain final approval from IDFPR for their Adult Use Cannabis Dispensing Organization License.

MN – The Minnesota Senate passed a bill allowing cannabis cultivators to start growing commercial crops later this year. The bill also streamlines the process for dispensary pre-approval, aiming for a broader array of cannabis stores within a year. This move is part of efforts to establish a regulated cannabis market, with the Office of Cannabis Management taking charge of enforcement and prioritizing social equity applicants. The bill now moves to a conference committee for further review before potentially reaching the governor’s desk.

MO – A judge in St. Louis ruled that Missouri counties and cities can stack sales taxes on cannabis dispensaries, allowing them to impose taxes on top of each other. The ruling came in response to a lawsuit filed by Robust Missouri 3 LLC, whose Florissant dispensary saw its tax rate on cannabis products rise to 14.988 percent after both the city and St. Louis County approved three percent sales taxes on adult-use marijuana. The ruling is seen as a win for counties, while leaders of the cannabis industry argue that high taxes could bolster the illicit market.

OH – Ohio GOP lawmakers are debating potential changes and regulatory updates to Ohio’s cannabis legalization law, with the expectation that recreational sales could begin in September, but efforts are underway to begin sales even earlier, this summer. Key areas of disagreement include tax revenue distribution, home cultivation rules and public smoking restrictions. Despite personal opposition from Governor Mike DeWine (R), legislation to expedite recreational cannabis sales is being considered, though a formal bill has yet to be introduced.

PA – The Biden administration’s move to reschedule marijuana from Schedule I to Schedule III under the federal Controlled Substances Act is seen as supportive of Pennsylvania’s adult-use legalization efforts, according to Gov. Josh Shapiro’s (D) office. While rescheduling doesn’t legalize cannabis federally, it could bolster state-level reform initiatives. Legislative panels have been discussing various policy considerations, including social equity and business opportunities, as they work to draft a legalization bill.

SC – The South Carolina House committee indicated that the medical marijuana bill won’t receive a vote before the session ends, despite a lengthy hearing. Sen. Tom Davis (R) expressed frustration over the delay in advancing the bill, which has overwhelming public support but faces opposition from law enforcement.

TN – Federal rescheduling of cannabis could nudge Tennessee towards legalization, and experts say it is “just a matter of time” until the state legalizes cannabis. At the same time, Sen. Bill Hagerty (R) has called cannabis a “gateway drug” and argues that cannabis legalization is “pro-criminal” and “anti-American.”

Hemp

U.S. Supreme Court to Hear Case of Fired Trucker Who Tested Positive for THC From CBD Product – Douglas Horn filed a lawsuit against Medical Marijuana, Inc. in 2015 under the Racketeer Influenced and Corrupt Organizations Act (RICO) alleging that the company falsely advertised a hemp-derived CBD product as having “0% THC,” which is why he elected to use it for pain management. A lower court sided with Horn and allowed the RICO suit to proceed. Medical Marijuana, Inc. appealed the ruling to the Supreme Court, which agreed to take up the case.

The Food and Drug Administration Seeks CBD Sources for Animal Studies – The FDA issued notice of a contract opportunity, specifically looking for small businesses capable of providing cannabidiol and its metabolites 7-hydroxycannabidiol and 7-nor-7-carboxycannabidiol for testing. The purpose of the study is “to determine drug exposure levels and resultant neurochemical changes throughout the perinatal, juvenile, and adult brain with administration of CBD and CBD metabolites in nonclinical animal models at human exposure levels using state of the art imaging technologies with spatial resolution capabilities.”

CA – Gov. Gavin Newsom (D) directed state officials in California to take action to protect youth from “mislabeled and potentially harmful hemp-infused products,” according to a press release. The California Department of Public Health and California Department of Alcoholic Beverage Control have since warned their respective licensees that it is illegal to sell hemp products that do not satisfy the specific labeling requirements under the state’s Health and Safety Code and that such activity could result in license revocation.

CT – The Connecticut House of Representatives and Senate passed H.B. 5150 and H.B. 5235, each of which would impose new prohibitions on the unregulated sale of cannabis products and intoxicating hemp-derived products throughout the state, while allowing a legal pathway for the sale of low-THC hemp-derived beverages. Lawmakers have said the change is necessary to protect the public from potentially harmful effects of hemp-derived cannabinoids.

GA – Gov. Brian Kemp (R) signed SB 494, which limits the possession and sale of hemp products to adults 21 years of age and older. The legislation also creates a licensing program for hemp cultivation, manufacturing, and retail sales of hemp-derived products, which will be subject to mandatory testing.

IL – Illinois hemp entrepreneurs are advocating for a legal regulatory pathway regarding hemp intoxicating isomer products, which have become widespread in smoke shops and convenience stores across the state. Proponents gathered in Springfield recently to support legislation (HB 5306) sponsored by Rep. La Shawn Ford (D), primarily aimed at preventing teenage access but without banning the products. Beyond age restrictions, Ford’s bill also proposes packaging guidelines, product testing requirements, and a 10% tax on retail sales. The bill stands in marked contrast with another bill (SB 3926) introduced recently by state Sen. Kimberly Lightford (D), which is backed by the Cannabis Business Association of Illinois and, if enacted, would halt all hemp intoxicating isomer sales pending safety evaluations.

PA – The Supreme Court of Pennsylvania granted a petition for appeal in a case that will address whether CBD oil falls within the parameters of “medical services” and “medicines and supplies” under the commonwealth’s Workers’ Compensation Act. Attorney Mark Schmidt brought the case against his employer, the Schmidt, Kirifides and Rassias law firm, as well as the Workers’ Compensation Board, over their rejection of his request for reimbursement of the costs for CBD oil that he uses for a work-related back injury.

International

Bahamas – Health Minister Dr. Michael Darville told reporters that he expects the country will decriminalize adult use cannabis and legalize medical cannabis by the end of the year. Darville stated, “[n]o one in any bill gets everything what they want, but I believe that through the mitigation and through the discussions, I think we have something that is workable, something that is safe, something that the Bahamian people could be proud of, and something that the community can benefit economically from the industry once it is put in place.”

Germany – The German government is forging ahead with a pilot program for commercial sales as part of the second phase of its cannabis plan. While it has long been assumed that legislators would need to introduce and pass sales legislation to fulfill legalization, the federal government is apparently taking a rulemaking approach that may speed up implementation. Agriculture officials have reportedly circulated a letter soliciting input on possible regulations to allow for retail sales under a pilot program, with comments due by May 10.

Switzerland – A Swiss referendum wants a new article on cannabis enshrined in the Swiss constitution. According to the text of the initiative published in the Swiss Federal Gazette, citizens should be allowed to grow and possess cannabis from the age of 18 for their personal use. Commercial cannabis growers and sales outlets would require a license and be subject to strict quality and safety regulations. The committee has until October 30, 2025, to collect the required 100,000 signatures to trigger a nationwide vote.

Thailand – A change to the Thailand Cabinet may spark significant changes to Thailand’s cannabis laws. Prime Minister Srettha Thaivisin recently replaced Public Health Minister Cholnan Srikaew with former Justice Minister Somsak Thepsuthin. Minister Somsak’s stance on Thailand’s ongoing cannabis issues are unknown, but he was the justice minister when cannabis was decriminalized in 2022 and has stated multiple times he supported that move at the time.

Business

Cannabis Industry to Add $112.4 Billion to US Economy in 2024 - The total U.S. economic impact generated by regulated cannabis sales could top $112.4 billion in 2024, about 12% more than last year, according to analysis from the newly released MJBiz Factbook. While the industry has experienced sales declines, the expansion of new cannabis facilities in states such as Maryland, Missouri and New York continue to foster growth. With more new cannabis markets on the horizon, the industry will add upward of $200 billion in additional spending to the US economy by 2030. The projections do not take into account any action from the US government such as federal rescheduling or legalization, though each could increase revenue and economic impact.

Reclassifying Cannabis Could Unlock Billions in Tax Savings For Cannabis Companies – Section 280E of the federal tax code currently bars cannabis businesses from claiming deductions on many basic business expenses. That rule often results in an effective tax rate of 70% or more, wiping out most licensed cannabis retailers’ earnings. Section 280E, which applies to Schedule I and Schedule II controlled substances, is expected to be lifted if rescheduling is completed.

Canopy Growth Announces Financing Resulting in $50 Million in Gross Proceeds – Canopy Growth Corporation announced a new financing arrangement with an institutional investor pursuant to which Canopy Growth is expected to receive gross proceeds of approximately US$50 million and exchange approximately C$27.5 million of existing debt maturing in September 2025 for a new senior unsecured convertible debenture of the Company maturing five years from the date of issuance thereof.

SNDL, Inc. Will Proceed With Acquisition of Equity Positions in US Cannabis Companies - SNDL Inc. announced that the SunStream USA group of companies intends to proceed with the acquisition of equity positions in U.S. cannabis assets, Surterra Holdings, Inc. (d/b/a Parallel) and Greenpeak Industries Inc. (d/b/a Skymint). Skymint operates in the state of Michigan, while Parallel is a multi-state cannabis operator currently operating in Florida, Massachusetts, Nevada and Texas.

KPMG Ending Services to Cannabis Businesses, Citing “Elevated Risk” - KPMG in Canada has decided to cease providing financial-statement audit services to businesses in the cannabis industry. The accounting firm confirmed the move in a statement to MJBizDaily, citing “elevated risk” in Canada’s adult-use cannabis industry. “KPMG in Canada is committed to delivering high quality audits and upholding the integrity of our capital markets,” Kevin Dove, national director of external communications for KPMG Management Services, said via email. “Given the continued challenges facing cannabis growers, we have made the decision that this elevated risk no longer meets the risk tolerance of our audit practice.”

New Poll Finds Majority of Americans Believe SAFER Banking Will Improve Public Safety – A new poll commissioned by the Independent Community Bankers of America found that 64 percent of Americans think the SAFER Banking Act will “help improve public safety.” More than half of those polled also thought the legislation would help underserved communities by opening the banking system to cannabis-related businesses.

Medicine

Federal Agencies to Discuss Potential of Cannabis to Treat Pain – The National Institutes of Health (NIH) announced it will hold an open meeting on June 4 to discuss the potential of cannabis to treat pain, with a particular focus on minor cannabinoids and terpenes. The meeting will include researchers studying how these compounds can alleviate pain, as well as a discussion by officials from the DEA, Food and Drug Administration, and National Institute on Drug Abuse on cannabinoid research.

States with Adult-Use Cannabis Saw Decrease in Teen Alcohol Use with No Increase in Substance Abuse – Using survey data to evaluate adult-use cannabis legalization, retail sale policies, and adolescent substance use data, researchers found that the legalization of adult-use cannabis did not lead to an overall increase in teen substance abuse, and, in fact, resulted in a “modest decrease” in teen alcohol and e-cigarette use. According to the researchers, “[t]he results suggest that legalization and greater control over cannabis markets have not facilitated adolescents’ entry into substance use.”

Study Rebuts Cannabis Consumer Stereotype – A new study published in Social Psychological and Personality Science debunked a common stereotype that cannabis users are lazy and unmotivated. The study results were based on self-reported answers by chronic users about their emotional state, motivation levels, and willpower.

Psychedelics

Psychedelics Market Projected to Grow Significantly – The business research and consulting firm, MarketDigits, released a report estimating that the psychedelic drug market is projected to rise from $3.6 billion in 2022 to $4.6 billion by 2030, representing a compound annual growth rate of 13.5%. According to a press release from the company, the growth in this market “is driven by several factors, including increasing awareness of mental health issues, unmet treatment needs, regulatory shifts and investment in psychedelic research and development.”

Federal Government To Offer Funding on Use of Psychedelics for Chronic Pain – The National Institutes of Health (NIH) will spend $8.4 million to support clinical trials on the safety and efficacy of psychedelics to treat chronic pain in older adults. These studies include psilocybin, DMT, LSD, mescaline, and compounds like MDMA.

Coalition Forms in Massachusetts Opposing Psychedelic Legalization – A coalition led by a physician from Massachusetts General Hospital is forming to oppose a voter ballot initiative that would decriminalize psychedelics for mental health treatments in Massachusetts. According to a spokesperson from the coalition (known as the Coalition for Safe Communities), the group believes that the initiative “goes way too far way too quickly, and doesn’t address any of the real concerns that public safety advocates have as well as mental health professionals.”

Dentons Speaks

The Dentons Cannabis team has partnered with MBO Ventures and several CPA firms to offer virtual panel discussions that dive into why the Employee Stock Ownership Plan (ESOP) is an industry game changer for cannabis businesses. 

Dentons partner Hannah King, together with Darren Gleeman of MBO Ventures, and Calvin Shannon and Cory Parnell of BGM will present the next webinar on May 21st at 1:00pm EST to discuss the ESOP option, its significant tax advantages and the nuances of navigating an ESOP transaction and approvals by state regulators. Registration for the webinar is available here.

Dentons partner Eric Berlin spoke on the Trade to Black podcast about the potential legislative shifts in the cannabis industry.

Dentons partner Hannah King published a new article on Cannabis Business Executive discussing Kentucky’s medical cannabis program.

Dentons has leveraged its combined expertise in tax and cannabis law to develop a tax mitigation strategy that is unique in that it is based on a statutory argument—as opposed to a constitutional argument—and is applicable to both adult use and medical cannabis businesses. Please contact tax attorney Mark Loyd if you are interested in learning more about the work that Dentons has been doing in this space.

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

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