Will cannabis be rescheduled?

On August 30, 2023, Bloomberg News reported that a leaked letter from a “top official” in the U.S. Department of Health and Human Services (HHS) advised the Drug Enforcement Administration (DEA) to reclassify cannabis as a Schedule III substance.

The DEA confirmed reception of the letter to Bloomberg, and the agency will now undergo its own reevaluation of how it views cannabis. The plant is currently a Schedule I substance under the Controlled Substances Act (CSA), a classification reserved for “drugs with no currently accepted medical use and a high potential for abuse,” according to the DEA.

The impact of the potential rescheduling has already been felt by the cannabis stock market. Should the DEA move forward with rescheduling, the industry as a whole will be affected. 

In this post, we’ll break down the HHS recommendation, discuss how drug scheduling works, how moving cannabis to Schedule III would impact consumers and businesses, and highlight some criticism of the recommendation from cannabis activists.

What did the HHS say about cannabis being rescheduled?

Though the letter from the HHS official has yet to be made public, the wheels of drug regulation policy have begun to turn.

The HHS recommendation to reschedule cannabis is the result of a review initiated in 2022 by the Biden administration and, “if adopted, would represent the biggest change in federal cannabis policy in 40 years,” attorneys Alex Malyshev and Sarah Ganley of Carter Ledyard & Milburn LLP write for Reuters.

“Although industry watchers are cautious with respect to any major policy changes absent clear indication of imminent action — a lesson hard learned from the annual speculation around the SAFE Banking Act — the news is nevertheless a welcome sign for an industry under tremendous pressure,” they add.

A “comprehensive scientific evaluation” by the Food and Drug Administration provided the foundation for the recommendation, according to Bloomberg, and “the FDA considered eight factors that determine the control status of a substance and recommended that marijuana be placed in the Schedule III category.” Further support for the recommendation came from the National Institute on Drug Abuse.

How does drug rescheduling work?

While the HHS review, conducted with the FDA, decided in favor of rescheduling, the DEA has its own agency-specific review process for determining the classification of different substances. 

According to analysis from a group of attorneys from the firm Foley Hoag, the DEA will make its evaluation by the following criteria:

• Cannabis’ 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 psychological or physiological dependence liability;
• Whether the substance is an immediate precursor of a substance already controlled under the Controlled Substances Act.

The attorneys add that the DEA has previously reviewed and rejected the rescheduling of cannabis five times and has yet to change its policy. The HHS recommendation, however, carries enough weight that the rescheduling might go through this time around.

“Assuming the DEA doesn't simply sit on the report, its next public step would be to publish a proposed rule in the Federal Register, triggering a notice-and-comment period and potentially an administrative law hearing,” Malyshev and Ganley of Carter Ledyard. 

“There is no set timetable for the DEA to render its decision (and indeed there is no guarantee it would be ready to move before the next presidential election). And while a handful of federal lawmakers have reaffirmed calls for cannabis reforms, urging HHS and the DEA to act quickly, it remains to be seen whether the agencies will heed lawmakers' call to action.”

How would rescheduling cannabis impact businesses and consumers?

In contrast to the current Schedule I status, Schedule III would classify cannabis as a drug “a moderate to low potential for physical and psychological dependence.” Interestingly, the language describing Schedule III status doesn’t mention whether the substance in question has medical applications.

This has significant implications for cannabis consumers and businesses. The most immediate impact, according to a group of attorneys at the firm Foley Hoag, would be that cannabis businesses would no longer be subject to Section 280E, a part of the U.S. tax code that “disallows any ‘deduction or credit… for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act).’”

Furthermore, “penalties for federal cannabis crimes would be lower,” if cannabis were to be rescheduled.

The Foley Hoag group clarifies that the rescheduling would not make cannabis federally legal and may still not be enough for major U.S. stock exchanges to list “plant-touching” cannabis companies.

“The uncomfortable status quo of federal illegality and state legality remains,” the attorneys conclude.

Researchers will also benefit from the potential rescheduling in two ways, according to Science. First, despite a 2022 law that helped increase access to cannabis for medical research, researchers must still submit “months of paperwork” to get a special license from the DEA. According to the magazine, Schedule III substances don’t receive the same level of restricted access. 

The rescheduling “could increase the supply of cannabis for research,” by expanding the number of organizations allowed to grow cannabis, which is currently limited to “a few universities and companies,” Science reports. 

Is rescheduling enough?

Despite the significance of the potential scheduling change, some cannabis advocates expressed disappointment at the HHS’ recommendation and had hoped that the agency’s review would launch the beginning of full descheduling.

“First, reclassifying cannabis to a lower schedule within the CSA continues to misrepresent the plant’s safety relative to other controlled substances such as anabolic steroids and ketamine (Schedule III), benzodiazepines (Schedule IV), or even alcohol, which is unscheduled,” NORML deputy director Paul Armentano states in a recent blog post. 

Armentano characterized the recommendation as “out of step with public and cultural consensus,” adding that it “does little to address the widening divide between state-legal marijuana laws and federal law.”

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