High Stakes: HHS Shakes Things Up on Marijuana Scheduling and DEA Abides

On May 16^th, the U.S. Drug Enforcement Administration (DEA) issued a Notice of Proposed Rulemaking (NPRM) to initiate the rescheduling of marijuana from a Schedule I to a Schedule III drug.¹The NPRM, which was published in the Federal Register on May 21st, is the first step of a formal rulemaking process required by the Controlled Substances Act (CSA) for rescheduling a controlled substance. This process, as detailed below, will likely include a public hearing before any final rule is published. Should the rescheduling be finalized as proposed, it would present a significant change for those entities in the marijuana industry, including those seeking to conduct medical research using marijuana and its derivatives.

Scheduling Changes and the Food, Drug and Cosmetic Act

Marijuana has been a Schedule I drug since the enactment of the CSA in 1970. Schedule I drugs are those which are determined to have no currently accepted medical use and include substances like heroin, LSD, ecstasy and peyote. Schedule III drugs, on the other hand, are those with a moderate to low potential for physical and psychological dependence; examples include anabolic steroids, testosterone and ketamine. Schedule III drugs are still subject to a variety of restrictions, including generally requiring a prescription and not being available over the counter.

Importantly, a change in scheduling does not have the effect of legalizing medical or recreational use of marijuana under federal law. As DEA noted in the NPRM, Schedule III controlled substance restrictions will apply should the proposals in the NPRM be finalized. Furthermore, marijuana would also be subject to the Food, Drug, and Cosmetic Act (FDCA). To date, the Food and Drug Administration (FDA) has not approved a drug product containing botanical marijuana for the treatment of any disease or condition, although it has approved certain cannabis-derived and related products.²Thus, marijuana would be considered an unapproved drug and therefore could not be lawfully introduced or delivered into interstate commerce except under limited circumstances (e.g., if an Investigational New Drug Application (IND) has been authorized). In plain English, the manufacture, packaging, distribution, sale, resale or purchase of marijuana would continue to be a violation of the FDCA, even after rescheduling.

The NPRM does not make clear how DEA envisions the scheduling change will impact state-legal marijuana operations. This will undoubtedly be a point of focus for many commenters.  

Tax Implications

As discussed in our previous article on this topic, rescheduling marijuana to Schedule III would eliminate the burden of Internal Revenue Code 280E (IRC 280E), thereby allowing state-legal marijuana businesses to take credits or deductions other than those for costs of goods sold. Currently, these businesses are not permitted to make these deductions as they are engaged in “trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act).”

A Developing DEA Perspective and Likely Changes

DEA has long been reticent to reschedule marijuana, a position that shines through various points in the NPRM, including the agency’s repeated references to its engagement with the Office of Legal Counsel (OLC) on topics relating to this proposal, including the binding nature of HHS’s recommendations.³Furthermore, DEA notes in the NPRM that it intends to apply restrictions to marijuana if it is rescheduled, but does not explain what these additional controls might entail. DEA also indicated that the final rule on marijuana may be influenced by various international treaty obligations of the United States, again not specifying what approach might be taken.⁴

It appears that the more significant sign of DEA’s reluctance played out behind the scenes, however. Even before the NPRM was published, it was publicly reported that DEA Administrator Anne Milgram did not sign the rescheduling order. The process was reportedly overseen by the Department of Justice (DOJ) and the NPRM was ultimately signed by Attorney General Merrick Garland. The exact reason for this departure from the usual protocol has not been explained by DEA.

Finally, rescheduling to Schedule III should ease restrictions for entities engaged in growing, processing and manufacturing marijuana for research purposes, as well as for those conducting clinical studies of marijuana or marijuana-based products. The current registration process for manufacturers (growers) is very strict and few permits have ever been issued. Stakeholders will be watching to see how DEA might implement research-related permitting and registration for marijuana under a Schedule III regime, particularly considering the fact that it is still an unapproved drug under the FDCA.

Congressional Response

The announcement that the Biden-Harris administration would move forward with rescheduling marijuana was largely met with praise from Members of Congress, many of whom took it as an opportunity to call for more significant federal reform. Senate Majority Leader Chuck Schumer (D-NY) praised the announcement as a “historic step forward” while affirming that he “remain[s] strongly committed to continuing to work on legislation” to ensure state-legal marijuana businesses are able to access financial services and ultimately to federally legalize marijuana by removing it from the CSA’s controlled substances list. Senate Finance Committee Chair Ron Wyden (D-OR) echoed this sentiment when he lauded the administration’s move to reschedule marijuana as a Schedule III substance while also calling for further action from Congress, stating, “Now it’s time to follow the lead of 24 states and more than half the country by decriminalizing and putting in place smart federal regulations. Leader Schumer, Senator Booker and I have the bill to do it.” The Cannabis Administration and Opportunity Act (S. 4226), first introduced by the trio last Congress and reintroduced this May, would decriminalize marijuana and remove it from scheduling under the CSA, while also providing for (1) a federal regulatory framework with respect to the commercial sale of marijuana and other areas, and (2) the expungement of certain federal marijuana offenses.

Additional Congressional Activity

The forthcoming Farm Bill negotiations also present an opportunity for lawmakers to revise the 2018 Farm Bill’s definition of hemp. The term is currently defined as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.” On May 17, 2024, the House Agriculture Committee released a discussion draft of the long-awaited House $1.5 trillion farm bill, the Farm, Food, and National Security Act of 2024, ahead of expiration of the current farm bill extension on September 30, 2024. Notably, the draft includes significant revisions to the definition of hemp in an aim to address the previous bill’s loophole, which allowed the production and sale of intoxicating THC products derived from hemp.

House Republicans’ Farm Bill defines the term “hemp grown for cannabinoid extraction” to mean “any hemp grown for purposes of extracting cannabinoids intended for human or animal consumption, inhalation, or topical use.” It further defines the term “industrial hemp” to mean hemp (1) grown for the use of the stalk of the plant, fiber produced from such a stalk or any other non-cannabinoid derivative, mixture, preparation or manufacture of such a stalk; (2) grown for the use of the whole-grain, oil, cake, nut, hull or any other non-cannabinoid compound, derivative, mixture, preparation or manufacture of the seeds of such plant; (3) that is an immature hemp plant intended for human consumption; (4) that is a plant that does not enter the stream of commerce and is intended to support hemp research at an institution of higher education or an independent research institute; or (5) grown for the use of a viable seed of the plant produced solely for the production or manufacture of any of the aforementioned materials. The House marked up the bill on May 23, 2024.

The path forward for the Farm Bill is murky, as Democrats in both the House and Senate have been active in voicing concern about House Republicans’ proposal. Senate Agriculture Committee Chair Debbie Stabenow (D-MI) released a summary of Democrats’ own proposal—the Rural Prosperity and Food Security Act—in early May. The Senate version of the bill does not include similar language differentiating between industrial hemp and hemp for cannabinoid extraction. Further, Ranking Member John Boozman (R-AR) is expected to release his own proposal in the coming weeks.

Despite their disagreements, leadership of both the House and Senate Agriculture Committees have positioned themselves for a negotiation. It remains unclear, however, whether they will ultimately reach a compromise in a contentious election year, or whether House Republicans’ proposed revisions to the Farm Bill’s definition of hemp, or other marijuana-focused amendments, will make it into a final package and against the backdrop of the difficult legislative environment of the current 118^thCongress.

Next Steps

The CSA requires that rescheduling take place through formal rulemaking on the record after an opportunity for a hearing. While DEA notes in the NPRM that the decision on whether an in-person hearing will be made by the Administrator of DEA, the level of public interest in this issue as well as the contents of the NPRM indicates that an in-person hearing may occur. Comments must be submitted electronically or postmarked on or before July 22, 2024. Interested persons may file a request for a hearing or waiver of an opportunity for a hearing or to participate in a hearing pursuant to 21 CFR 1308.44 and in accordance with 21 CFR 1316.47 or 1316.49, as applicable, which must be received or postmarked on or before June 20, 2024. Given the tremendous interest in this issue for so many stakeholders, it is reasonable to expect that DEA will receive a high volume of comments that will need to be worked through by the agency in their consideration and preparation of any final rule.

If you have questions about this or related topics, or are interested in submitting comments to the NPRM, Akin’s health care & life sciences and lobbying & public policy practices continue to closely monitor the evolving marijuana landscape and keep clients apprised of key regulatory and legislative developments.

^{1 The proposal does not apply to synthetically derived THC (e.g., delta-10-tetrahydrocannabinol) which does not fall within the CSA’s definition of marijuana.}

^{2 FDA has approved one cannabis-derived drug product: Epidiolex (cannabidiol), and three synthetic cannabis-related drug products: Marinol (dronabinol), Syndros (dronabinol), and Cesamet (nabilone). “These approved drug products are only available with a prescription from a licensed healthcare provider. Importantly, the FDA has not approved any other cannabis, cannabis-derived, or cannabidiol (CBD) products currently available on the market.”  See “FDA and Cannabis: Research and Drug Approval Process”, available at https://www.fda.gov/news-events/public-health-focus/fda-and-cannabis-research-and-drug-approval-process.}

^{3 DEA submitted the following questions to OLC: (1) If a drug satisfies the two-part inquiry employed by HHS, does that establish a currently accepted medical use under the statute even if the drug has not been approved by FDA and even if the drug does not satisfy DEA’s five-part test?; (2) To what extent do the “scientific and medical matters” referenced in 21 U.S.C. § 811(b), which are binding upon the Attorney General, include the Secretary’s evaluation of a drug’s currently accepted medical use or any scientific and medical considerations involved in that evaluation?; and (3) Does the CSA, including the requirement that the Attorney General control drugs “under the schedule he deems most appropriate to carry out” the United States’ “obligations under international treaties, conventions, or protocols in effect on October 27, 1970,” id. § 811(d)(1), require DEA to place marijuana in either Schedule I or Schedule II to comply with the Single Convention on Narcotic Drugs, Mar. 30, 1961, 18 U.S.T. 1407 (“Single Convention”)?}

^{4 “Accordingly, concurrent with this rulemaking, DEA will consider the marijuana-specific controls that would be necessary to meet U.S. obligations under the Single Convention and the Convention on Psychotropic Substances in the event that marijuana is rescheduled to schedule III, and, to the extent they are needed if marijuana is rescheduled, will seek to finalize any such regulations as soon as possible.”}