In a groundbreaking development for the cannabis industry, sources within the U.S. Drug Enforcement Administration (DEA) are signaling the agency’s intention to reclassify marijuana from Schedule I to Schedule III under the Controlled Substances Act.
Overview
This decision, based on recommendations from the U.S. Department of Health and Human Services (HHS) and prompted by President Biden's directive, signifies a significant shift in federal drug policy. In October of 2022, President Biden requested federal agencies to review marijuana classification and in August of 2023, HHS gave their recommendation to move marijuana to a Schedule III classification. While rescheduling does not legalize marijuana for recreational use, it acknowledges its medical benefits and lower potential for abuse compared to other drugs in Schedule I. Additionally, and perhaps most importantly for cannabis businesses, moving cannabis from Schedule I to Schedule III would remove the punitive provisions of Section 280e of the tax code that have plagued the industry for decades – and fix their balance sheets almost overnight. This announcement is particularly significant as it coincides with the last day of Second Chance Month; earlier this month, the administration declared their commitment to addressing marijuana reform.
What to Expect
Once the DEA's rescheduling decision is finalized, it will not take effect immediately. Before implementation, the proposal needs approval from the White House Office of Management and Budget (OMB) and must undergo public comment. The final rule, after OMB approval and publication, could take several months to complete. Marijuana's federal status will then change 30 days after the DEA's final rule is published in the Federal Register.
This regulatory shift could have effects on sentencing guidelines, access to public housing and cannabis-related banking regulations. While reclassifying marijuana from Schedule I to Schedule III would be viewed as a tremendously positive move by cannabis advocates and a signal that the cannabis industry will soon gain true legitimacy under federal law, Congress still needs to act on the Secure And Fair Enforcement Regulation (SAFER) Banking Act so that cannabis businesses can legally maintain bank accounts and secure loans like any other business.
While not legalizing recreational use, this move signifies a significant step forward in reforming America's stance on marijuana. Additionally, there is a likelihood of litigation through lawsuits filed by conservative State Attorneys General to delay implementation of the rescheduling process altogether.
Brownstein will continue to monitor developments of this potential regulatory change as well as the SAFER Banking Act and other cannabis-related legislation. For more information on how this possible change could affect your industry and advice on how to get involved in the process, please reach out to the authors of this alert.
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