Rescheduling Marijuana

On October 6^th, 2022, President Joe Biden asked the Secretary of the Department of Health and Human Services (HHS) and the Attorney General to review how marijuana is classified. According to the Pew Research Center (2024), 88% of Americans believe cannabis should be legal for either medical or recreational use. Therefore, it was not surprising that President Biden asked for the review. Currently, marijuana is a Schedule I substance, meaning it is thought to have no medical value, a high probability of addiction, and a lack of any accepted safety or use in medically supervised treatment. Marijuana was put on the Schedule I list by Congress when they enacted the CSA (Controlled Substances Act). The CSA “provides for the periodic updating of schedules and delegates to the Attorney General, after consultation with the Secretary of Health and Human Services, to add, remove, or transfer substances to, from, or between schedules”. Moreover, it is important to note that Congress or the executive branch has the authority to change the status of marijuana under the CSA. If Congress would like to change the legal status of marijuana, they would do so before or after the DEA makes a final scheduling decision.

Currently, rescheduling marijuana to Schedule III of the CSA is being considered. Schedule III substances are drugs, substances, or chemicals with a moderate to low potential for physical and psychological dependence, which can be dispensed lawfully by a prescription. Additionally, those who are prescribed medical marijuana will need to obtain valid prescriptions, that are different than the state regulatory requirements for medical marijuana.

In August 2023, the HHS published its scientific and medical evaluation, which was conducted by the FDA and the other HHS constituents with the DEA, recommending that marijuana be rescheduled to a Schedule III substance. On May 21, 2024, the DEA opened a 62-day public comment period, which concluded on July 22, 2024. The next step by the DEA will be to sift through the “comments in order to discern if any of them raise ‘significant’ legal or factual questions that must be addressed” (Green Market Report). Furthermore, the DEA must decide whether to hold an administrative hearing about the rule before moving forward. Nevertheless, all the DEA has done is announce its intention to reschedule marijuana, but marijuana has not been rescheduled. Rescheduling marijuana could have substantial impacts on marijuana businesses, the Justice System, and the research on marijuana.

As of now, marijuana businesses are subject to Section 280E of the International Revenue Code (“IRS”), which subjects the businesses to pay “between 60-70%, compared to the general corporate tax rate of 21%” (Marijuana Policy Project). The Code currently prevents the cannabis industry (illegal businesses) from taking deductions and credits for amounts paid or incurred in the trafficking of controlled substances. If marijuana is rescheduled, the companies would be able to participate in deducting rent, payroll, or various other expenses. Additionally, reclassification would create an advantage for the cannabis industry against illegal activities because removing the burden of the tax code on legal cannabis businesses frees up money, which can lead to sustainable operations and eventually reduce the criminal market.

Furthermore, rescheduling marijuana could have substantial benefits for the legal cannabis industry. Currently, the underground marijuana economy has an estimated value of $66 billion annually (New Frontier Data, 2023). The underground market currently undermines the legal cannabis industry and robs the economy of substantial tax revenue. If marijuana is rescheduled, it arguably would transition the cannabis industry to a more legitimate status and drive more business to the legal market, which would increase tax collection.

Rescheduling marijuana would have an impact on opening the research field of studies related to marijuana. As of now, many marijuana-related studies are unable to occur due to the strict Schedule I drug guidelines. Furthermore, the funding of medical research on a Schedule I drug is limited. Hence, rescheduling marijuana could open the research field up to conducting the rigorous and randomized controlled studies that have been difficult to conduct. Schedule III drugs have been shown to be easier to study, but the reclassification would not immediately reverse all barriers. Despite this, people are optimistic that it will open the door to conduct studies with human test subjects. In the past, researchers were only able to acquire cannabis for studies through federal dispensaries, which have a much lower THC count. While there are still questions as to whether the reclassification efforts would result in being able to study state-licensed marijuana dispensaries, if allowed, it would result in a better indication of marijuana because it is what is more commonly available to consumers. Nonetheless, if researchers are allowed to study the state-licensed marijuana companies, the studying of cannabis would be able to provide a fuller range of both cannabis’ benefits and potential drawbacks.

However, rescheduling marijuana arguably fails to address the key issues of state laws, bankruptcy, and lack of federal trademark protections. A crucial issue associated with state laws is that the state employment laws will not be modified. A person could legally be prescribed medical marijuana, but, per that state’s law, the employer could refuse to hire a person, or fire a person, due to a violation of a drug place policy. Additionally, the rescheduling of marijuana would not address the issue of marijuana businesses being unable to apply for federal bankruptcy. Under the federal U.S. Bankruptcy Code, bankruptcy plans are supposed to be “proposed in good faith and not by any means forbidden by law.” Therefore, with the state-approved markets of marijuana still being illegal under federal law, there will be no change in the barrier of bankruptcy. Other businesses could receive a “fresh start”, but cannabis businesses still will not be given that option. Lastly, the reclassification arguably does not solve the major problem of the lack of availability of federal trademark registrations for state cannabis companies. In states like Nevada, where cannabis is legal for recreational use, people are unable to obtain the federal trademark registration for their cannabis because the federal trademark protection does not extend to activity that is illegal under federal law.

Overall, as the DEA considers rescheduling marijuana, the rescheduling of marijuana should have a positive impact on the cannabis industry but will not solve all problems the industry faces.

Sources:

https://apnews.com/article/marijuana-biden-reschedule-banks-illegal-f298832392d3e7aedb066204ecef792b

https://crsreports.congress.gov/product/pdf/LSB/LSB11105

https://www.forbes.com/sites/dariosabaghi/2024/05/22/dea-publishes-proposed-rules-to-reschedule-marijuana/

https://mjbizdaily.com/what-is-status-of-marijuana-industry-bankruptcy-reform/#:~:text=Barriers%20to%20cannabis%20bankruptcies&text=Since%20even%20state%2Dregulated%20marijuana,%2C%20they%20aren’t%20eligible

https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title21-section811&num=0&edition=prelim

https://www.clarkhill.com/news-events/news/cannabis-reclassification-litigation-impact/

https://www.dea.gov/drug-information/drug-scheduling#:~:text=Schedule%20I%20drugs%2C%20substances%2C%20or,)%2C%20methaqualone%2C%20and%20peyote

https://www.findlaw.com/criminal/criminal-charges/federal-marijuana-laws.html#:~:text=Federal%20Marijuana%20Crimes&text=(21%20U.S.C.,a%20minimum%20fine%20of%20%241%2C000

https://www.greenmarketreport.com/the-dea-marijuana-rescheduling-comment-period-is-over-whats-next/

https://www.justice.gov/opa/pr/justice-department-submits-proposed-regulation-reschedule-marijuana

https://www.marijuanamoment.net/marijuana-rescheduling-would-create-over-50000-new-jobs-industry-group-tells-dea-on-last-day-of-public-comment-period/