With federal plans set to reschedule cannabis from a Schedule I drug to a Schedule III drug, how could this change the legal landscape for cannabis businesses and other interested parties across the U.S.?

Since growing momentum took hold across the country for the decriminalization and legalization of medical and recreational cannabis, cannabis businesses in many states have become accustomed to operating under a dual system—with cannabis state laws in conflict with federal laws.

The differences and “friction” between the two systems could soon be reduced significantly…

What is the change proposed by the DEA?

According to a notice of proposed rulemaking (NPRM) published by the DEA/DOJ in May 2024, it is proposing to reschedule cannabis from a Schedule I controlled substance to a Schedule III controlled substance. 

This followed calls by President Biden and a comprehensive review of the safety of cannabis by the US Department of Health and Human Services (HHS). This found that cannabis has less potential for abuse than other substances in Schedules I or II (which include fentanyl and hydrocodone) and has accepted medical use.

Instead of cannabis being regarded as a substance with no accepted medical use and a high potential for abuse, therefore, the recommendation is to reclassify the drug to a substance having a moderate to low potential for physical and psychological dependence.

While these findings will come as a surprise to virtually nobody reading this, the intention of federal government departments and agencies to finally listen to reason when it comes to cannabis may shock many!

How could reclassification impact laws?

Ultimately, the proposed changes are seen as the biggest step toward federal legalization of cannabis in more than half a century. 

We should hold onto our hats a little here, though. The federal government is not about to simply “legalize” cannabis. The rulemaking process will not be completed before the Presidential Election in November—possibly shifting the priorities of the DEA away from cannabis rescheduling.

However, growing bipartisan support for rescheduling cannabis should mean that changes are closer than ever before.

If the cannabis reschedule proceeds, the reclassification will likely have profound implications for many aspects of the cannabis industry, including cannabis research, medical access, and regulatory frameworks.

Cannabis industry commentators believe that while the move won’t yet legalize cannabis at the federal level, it would be an important first step with the following potential effects on the industry:

• Reducing the tax burden for cannabis businesses (currently heavily penalized by federal cannabis laws).
• Offering more funding and financing opportunities from banks and other organizations that could not previously accept cannabis businesses due to restrictive federal laws.
• Reducing the consequences of being charged federally with manufacturing, possessing, dispensing or distributing cannabis (though federal prosecutions in cases that abide by state laws are extremely rare even now).
• Opening up possibilities for further cannabis research and development (due to easier access to federal funding and grants). 
• Accelerating the development of new cannabis-based drugs that would seek approval with the Food and Drug Administration (FDA).

It should be noted, however, that Schedule III drugs are regulated (and tested) more stringently than cannabis under many existing state laws. There are also some fears amongst small, independent cannabis business entities that a federal change could also open the door for pharmaceutical, tobacco, and alcohol giants to enter the market and edge out smaller players.

Remember, too, that if and when the proposed changes are made, federal criminal charges can still be filed for the possession, production, manufacture or distribution of cannabis. 

What next?

After the announcement in May, the DEA invited stakeholders to comment on the proposed rule change during a 60-day window. Almost 43,000 comments were submitted from many parties, including pro- and anti-legalization activists, cannabis industry advocates, state cannabis regulators, medical professionals, researchers, and law enforcement officials.

In late August, the DEA announced that it would hold a hearing before an administrative law judge on the cannabis rescheduling proposal due to be held in December. This is a legal requirement before any change of rule to the cannabis laws can take place.

The hearing will be similar to a trial at which many people are likely to provide testimony. Under the terms of the Controlled Substances Act, the following factors must all be considered before the rules on a particular substance are changed:

• The drug’s actual or relative potential for abuse
• Scientific evidence of its pharmacological effect, if known
• The state of current scientific knowledge regarding the drug or other substance
• Its history and current pattern of abuse
• The scope, duration, and significance of abuse
• What, if any, risk there is to the public health
• Its psychic or physiological dependence liability
• Whether the substance is an immediate precursor of a substance already controlled

It is expected that the hearing process could take months or even years to complete. Then, the presiding administrative law judge will write and file a report, which needs to be reviewed by the DEA along with the input from stakeholders. A final decision will be issued with reasons for making the decision, which will be published in the Federal Register providing any legal challenges (if applicable) are overcome.

As you can see, an extensive process must still be navigated before cannabis is re-classified. Everyone in the cannabis business community will need to be patient. 

For informed legal advice for cannabis businesses anywhere in the U.S., call 866-329-0729 for a consultation at Cannabis Law Solutions.