Editor’s Note: CBT and Cannabis Conference are hosting a free, live webinar on Nov. 7 on "Rescheduling or Descheduling: How Future Federal Decisions May Impact the Industry." It will explore the actual process that the Biden administration is undertaking in the schedule review; the ways in which rescheduling or descheduling cannabis would impact the industry; how businesses can secure GMP compliance ahead of possible FDA oversight; how access to capital may change under federal intervention; the possible effects on interstate commerce and international trade; and more. (And bring your questions.) Find out more and register here for this important event.
Cannabis Business Times Editor Theresa Bennett, Associate Editor Andriana Ruscitto, Senior Editor Zach Mentz and Managing Editor Patrick Williams contributed to this report.
This article was updated Oct. 27 to include additional insights from U.S. Rep. Earl Blumenauer, (D-OR).
During the past 50 years—and especially during the past decade, as more states legalized medical and adult-use consumption and sales—there have been several petitions, bills, resolutions and other pushes for the federal government to review cannabis’ Schedule I status in the Controlled Substances Act.
These requests have come from cannabis advocacy organizations, medical associations and Democratic and Republican politicians.
The DEA has repeatedly rejected petitions for Schedule I removal.
But until this month, when President Joe Biden announced he would pardon thousands of people with previous federal cannabis possession charges, urge governors to do the same at the state level, and request that secretary of Health and Human Services (HHS) Xavier Becerra and Attorney General Merrick Garland review cannabis’ Schedule I status, those calls to reform cannabis policy have not come from the top.
That’s significant and “truly historic,” says Kris Krane, who was at the helm of multistate cannabis operation 4Front Ventures for 10 years and now serves as CEO of strategic consultancy Kranewreck Enterprises and as director of cannabis development for KCSA Strategic Communications.
“The first time a sitting U.S. president has acknowledged the failure of federal marijuana policy is a really big deal, especially coming from Joe Biden, someone who has traditionally not been friendly on this issue. It shows just how far this issue has evolved politically,” Krane says. “Not only did President Biden do this, but he did it weeks before a midterm election, which would indicate that he believes this is politically beneficial.”
Now that the president has signaled that decriminalizing simple cannabis possession is a priority, many believe this suggests a momentum that something could really happen this time, and the plant could finally fall off the Schedule I list of illegal substances, which are considered by the DEA to have “no accepted medical use and a high potential for abuse.” Currently, cannabis sits on that list alongside drugs like heroin and LSD. In the eyes of the federal government, it considered more dangerous than the highly addictive fentanyl and methamphetamine and as having no medical purpose, all while patients are using cannabis to treat dozens of qualifying conditions under state-legal programs and 19 states have legalized adult-use consumption.
“I actually think people are not quite fully understanding how big a deal it is,” says Graham Farrar, founder and president of Glass House Brands, a California-based vertically integrated cannabis company. “Maybe I'm an eternal optimist, but there are a couple of ways to legalize cannabis. And the White House just kicked off a process [that] doesn't involve Congress to do it. …. This [involves] Xavier Becerra … who was the attorney general for California—so, this is who [Gov. Gavin] Newsom put in place on the legal front to legalize cannabis in California, right? Like, he knows legalization. He just did this. And you have Biden [in the] White House now [with] political capital behind it.”
While many applauded Biden’s move to pardon federal simple cannabis offenses—which will apply to more than 6,500 people, according to the Brookings Institution—and his call on governors to review their policies, concerns about the call for cannabis’ scheduling review began to mount in the days and weeks after the announcement.
Where cannabis could land after review—whether it’s rescheduled or descheduled or remains on Schedule I—has been widely speculated. Many wonder what would happen to state-legal medical and adult-use businesses if cannabis were reclassified somewhere between Schedule II and Schedule V rather than fall off the list entirely.
There are two paths for cannabis to be rescheduled. One involves Congress, through legislation or amendments to the CSA, and the other, which Biden has just initiated, involves HHS and the Federal Drug Administration (FDA), which considers scientific evidence of the medical benefits of cannabis, risk of abuse, and sends those recommendations to the attorney general and the DEA. The attorney general then reviews the submitted evidence and determines whether the substance should be rescheduled, descheduled, or remain as is.
There’s the very real possibility that nothing changes. Although Biden has called for the review, he does not have the authority to single handedly alter cannabis’ status, says Paul Armentano, deputy director with 52-year-old public interest advocacy organization NORML.
And although Biden requested an expedited review, historically, past examinations have taken years. The most recent study of cannabis’ Schedule I status, which ended with a DEA rejection in 2016, took five years. The plant stayed in Schedule I, and the state and federal legalization dichotomy remained status quo.
“They have a number of options at their disposal, but historically, there has only been one outcome that these agencies have chosen in the past, and that has always been to keep the cannabis plant and all of its products in Schedule I,” Armentano says. “NORML filed the first rescheduling petition in 1972. It wasn't heard until 1986. It wasn't decided upon until 1988. That decision was then overruled by the DEA in 1990, which led to court litigation, which wasn't settled until 1994. That's 22 years.”
Krane says while it’s too soon to speculate the myriad permutations and possibilities and dwell on the hypotheticals, it is important to understand the various directions policy makers could take and how the law is applied so that the lawmakers who do make the final decision understand the ramifications.
“Rather than trying to prepare for what life’s going to look like after this process, what folks in the industry need to be doing is reaching out to everybody they know in D.C. and trying to help influence or help impact the ultimate recommendation here,” he says. “How you adjust your business to deal with a new world where this is Schedule II is very different than a world where it’s descheduled.
“[What] we really need to be focusing our time on for the next year or so is using every tool at our disposal to help move the process in a positive direction."
Schedule II: Schedule II would end criminal prosecution, open traditional avenues to capital and expand opportunities for research but is considered a “worst-case scenario” by many. Schedule II substances are deemed to have accepted medical uses in the U.S. but generally carry restrictions because they are still perceived to have a high potential for abuse and considered as dangerous. Schedule II drugs are also subject to Tax Code 280E, so cannabis companies may still be unable to deduct business expenses, for example. Schedule II drugs, which include Vicodin, cocaine, fentanyl, Adderall and Ritalin, are sold through pharmacies and carry more restrictive conditions for prescribers because of their potential for physical and psychological dependence. Many worry that if cannabis were within Schedule II and regulated by the federal government, only large pharmaceutical companies would be able to afford the requirements to bring a drug to market.
Schedule III: Schedule III drugs, which include Tylenol with codeine, ketamine and testosterone, also are considered to have a potential for abuse, but substances on this list are believed to be less dangerous than those listed on Schedule I and II. They are deemed to have accepted medical uses in the U.S. and are generally prescribed and sold through licensed pharmacies and not available over the counter. If cannabis were within this schedule, it could be subject to more federal oversight, FDA approval and be sold through licensed pharmacies.
Schedule IV: Schedule IV drugs, which include Xanax, Valium and Ambien, are perceived to have a lower potential for abuse compared with substances within Schedule III or above, have accepted medical use and can be obtained with a prescription in a pharmacy. If cannabis were within this schedule, it could be subject to more federal oversight, FDA approval and be sold through licensed pharmacies.
Schedule V: Schedule V drugs carry the lowest risk or potential for abuse and are both prescribed medications and over-the-counter substances. Although these drugs carry fewer restrictions, if cannabis were within this schedule, it could be subject to more federal oversight and FDA approval and put state-legal markets in jeopardy.
The Worst-Case Scenario: Schedule II
Removing cannabis from Schedule I would effectively decriminalize possession. In 2021, when more than a dozen states had legalized adult-use sales, there were still 149 people sentenced for marijuana possession at the federal level, according to the Congressional Research Service. That same year, more than 170,850 people were arrested for cannabis possession at the state level, according to FBI data.
Losing the Schedule I baggage would also lift restrictions that have handcuffed researchers since the plant was added to the CSA’s list in 1970. The last reschedule request the DEA rejected in 2016 requested that cannabis be rescheduled as medical cannabis in Schedule II.
But Schedule II “doesn’t help us much” from an industry perspective, Krane says. Schedule II substances, according to the CSA, are still defined as “drugs with a high potential for abuse,” considered dangerous, and (if not an FDA-approved medication in the U.S.) fall under the purview of the Internal Revenue Service (IRS) Tax Code 280E. Cocaine and methamphetamine are Schedule II drugs, but so are Adderall and Ritalin, commonly prescribed to treat attention deficit hyperactivity disorder (ADHD). They fall under federal authority, require FDA approval, a prescription sold through licensed pharmacies, and carry more restrictions than typical prescriptions.
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“The worst-case scenario would be doing something like moving cannabis to Schedule II, which is still the federal classification for dangerous and addictive drugs,” says Brian Vicente, founding partner of cannabis law and policy firm Vicente Sederberg. “You're admitting some medical validity when things are Schedule II instead of Schedule I, but then I think that would be a signal from the feds that we have to sell cannabis through pharmacies. It would just be very confusing, I think, for state-level consumers and businesses.
“Now, the positive side there is if cannabis was allowed to be sold through pharmacies, [in] places that don't have medical cannabis laws …, people would, in all likelihood, be able to access cannabis products from those pharmacies. But again, that would really turn the preexisting state-level regulatory structures on their head.”
In the past, the DEA has indicated that Schedule II would be the only other option for cannabis.
In a 2016, according to a summary from the DEA outlining the reasons the most recent petition to reschedule cannabis was denied, the DEA noted it is obligated under the Single Convention on Narcotic Drugs, a 1961 international treaty, to keep cannabis within either Schedule I or II of the CSA:
“Marijuana is a drug listed in the Single Convention … Thus, the DEA Administrator is obligated under section 811(d) to control marijuana in the schedule that he deems most appropriate to carry out the U.S. obligations under the Single Convention. It has been established in prior marijuana rescheduling proceedings that placement of marijuana in either schedule I or schedule II of the CSA is 'necessary as well as sufficient to satisfy our international obligations' under the Single Convention. As the United States Court of Appeals for the DC Circuit has stated, ‘several requirements imposed by the Single Convention would not be met if cannabis and cannabis resin were placed in CSA schedule III, IV, or V.’”
However, state-legal industries muddy this water, and other countries, including Canada, have approved federal legal cannabis programs that have fewer restrictions than required under this treaty.
Would Schedule III, IV or V Be Better?
According to the DEA, “the abuse rate is a determinate factor in the scheduling of the drug,” so the further a drug falls in the schedule, the less addictive and subject to dependency it is, at least from the federal government’s standpoint. Schedule III drugs include Tylenol with codeine, ketamine and testosterone. Schedule IV drugs have a “low potential for abuse and low risk of dependence” and include Xanax, Valium and Ambien. Schedule V drugs include prescription-strength Robitussin. Like Schedule II substances, Schedule III, IV and V drugs are regulated by the federal government. Many are prescribed, though some Schedule V drugs are available over-the-counter but generally require more restrictions than typical OTC drugs.
Jarrod Loadholt, partner with law firm Ice Miller’s Public Affairs Group, says ideally, Biden would have suggested where cannabis should be scheduled in his announcement.
“The science that cannabis is not as addictive as heroin has been clear for a long time, and maybe our politics have caught up to the science,” Loadholt says. “In a perfect world, you would have directed where cannabis should be as opposed to asking where you think it should be. Complete descheduling is not going to happen … whatever comes out of this process is going to be challenged in court.”
No matter where it lands on the list, if cannabis is rescheduled, it would be a “disaster,” Armentano of NORML says.
“The reason the federal government ought to take action on this issue is because right now, the majority of state marijuana laws are inconsistent with federal law,” Armentano says. “If marijuana were to be removed from Schedule I and placed in some other schedule in the Controlled Substances Act, the majority of states right now that are out of compliance with federal law would be just as out of compliance with federal law going forward.”
It also would complicate and potentially exacerbate the dual legality, as scheduled substances go through FDA approval, Armentano says.
“Regulatory agencies involved in this process over the years have defined medical use in the United States very narrowly. That means the drug is approved by the U.S. Food and Drug Administration for a particular purpose. … I don't think it is likely that there's going to be an exception made for cannabis, that cannabis is going to be placed in a lower schedule absent FDA approval,” he says.
And Krane says the pharmaceutical model in Europe’s medical programs “are largely failing.”
“Cannabis, as we know it, doesn’t really fit into a traditional medical market model,” he says. “In Europe, where it's been legalized for medical purposes in a number of countries, it's distributed through pharmacies. It has to be prescribed by doctors ….”
Krane says yet another hypothetical situation that could arise is even if a move occurs to Schedule II or III, which would allow pharmaceutical companies to patent cannabinoid-based medicines, state markets could be left to operate as they are.
The story of Epidiolex, an FDA-approved medication (for treating seizures) that contains cannabis compound cannabidiol (CBD), is an example of just how convoluted this process can be, says Shane Pennington, counsel with Vicente Sederberg.
"The DEA can put a substance in a particular schedule—like Schedule IV or Schedule V—and then impose additional restrictions on that substance in particular through separate regulations. It did precisely that with Epidiolex,” Pennington says. “When FDA approved Epidiolex, DEA moved [Epidiolex] from Schedule I to Schedule V, but because Epidiolex qualified as ‘cannabis’ … DEA promulgated special regulations at the same time to impose quota and import-export requirements …. Those special quota and import requirements didn’t apply to any other Schedule V substances at the time (or now).
“When Congress passed the 2018 Farm Bill, DEA decided to remove [Epidiolex] from the schedules entirely (presumably because Epidiolex qualifies as ‘hemp,’ which is no longer a controlled substance in the wake of the 2018 Farm Bill).”
Krane says the action the government takes is perhaps even more important than how cannabis is scheduled.
“A move to Schedule II or III could be really problematic. But that also all depends. It could be nothing,” Krane says. “So much depends on what the federal government does in terms of implementation and enforcement. It's fully federally illegal. Everything that every one of these companies is doing is a complete and total violation of federal law, and yet the federal government's just allowing it to continue on at the state level.”
Best Case, Descheduling—But What Then?
Most agree descheduling cannabis is the best-case scenario for the industry, but whether it’s regulated similarly to tobacco or alcohol or the federal government leaves it to the already established state programs is another unknown.
U.S. Rep. Earl Blumenauer, (D-OR) called the Schedule I classification "grotesquely inappropriate" and believes with Biden's announcement, there will be "beneficial long-term consequences that may start to take effect sooner than you think."
"If we were doing this again, cannabis wouldn't be listed at all. What would be a Schedule I controlled substance would be tobacco, which is highly addictive, has no medicinal value and is dangerous," Blumenauer says. "When you do it fairly, thoughtfully and scientifically, there's just one conclusion, and that is to legalize, regulate and tax. And I think that's where we're going to end up."
If it’s descheduled, Krane says Congress would likely step in to establish some regulations. So even then, state markets could remain in limbo.
While Krane says he couldn’t offer predictions for how or whether cannabis is scheduled, he does estimate that the review timeline will be shorter than in the past.
“It's a decent assumption that this process is done before the administration leaves office. And if that's the case, it really needs to be done, call it within 18 months, because there's a lot involved with it,” Krane says. “But the process is going to end in recommendations, and then the administration needs to actually take action to follow those recommendations, or to implement those recommendations. And that is a little bit of a process in itself.”
And left in another administration’s hands, anything could happen, Krane says, noting the DEA’s decision to ignore the recommendation from its own [administrative] law judge to reschedule in 1988.
“There's a lot of precedent for that. If they really want this to happen, this administration needs to see this thing through all the way to the end,” he says.
Election Day Effect, Banking Action
On Nov. 8, voters in five states will consider adult-use legalization ballot initiatives. The results may also have an impact on what happens with cannabis reform next, says Jared Moffat, state campaigns manager for the Marijuana Policy Project.
“I think if we win all five, then the narrative starts to very much solidify: ‘Hey, this is a political winner, this just won in these four conservative states,’” Moffat says of Arkansas, Missouri, North Dakota and South Dakota. (Maryland voters also will consider an adult-use cannabis ballot initiative.) “I think the odds of descheduling kind of go up if we win all those states. If it's a mixed bag, then I think it's more likely that we see a moderate approach of rescheduling–it'll be half the pie rather than the whole pie.”
Beyond policies outlined in Biden’s statement, Krane noted that one immediate, concrete result of Biden’s announcement is reenergizing the long stalled Secure And Fair Enforcement (SAFE) Banking Act, the Cannabis Administration and Opportunity Act—which would decriminalize and deschedule cannabis, as well provide expungements of certain cannabis offenses—and other bills that would impact the daily operations of cannabis businesses.
“It increases the likelihood that [SAFE] actually becomes law, and that would have a very big impact on the day-to-day industry,” he says. "It's really hard to imagine an administration that just made cannabis a priority and called for a study around its rescheduling to outwardly opposed banking reform. It just makes it more likely that we get that reform done here.”
Blumenauer says, with Biden's move, it will be "relatively easy to marshal support behind reform legislation."
"The key is making the administration on board or have Congress stop messing around, because we passed [the SAFE Banking Act] repeatedly and it's been hung up in the Senate," he says. "But that's different now in the Senate because ... we have Senate leadership–Chuck Schumer, Ron Wyden, Cory Booker–who are onboard with full legalization. So there are a number of paths that are available either administratively or legislatively, and what the president did was give a green light for people to pursue these other options."
Vicente says Biden’s statement is an important step to the decades-long effort to destigmatize cannabis.
“I think [Biden is] indicating support and acknowledgement that cannabis is not this ‘reefer madness’ substance,” he says. “It might take a while to move it out, but I do think the fact that the president, the most powerful man in the world, is acknowledging that we need to take action on this is a big deal. And I think it's sending a message to down-ballot Democrats across the country. This is an issue that even the most mainstream Democrats can get behind. Will things move quickly? It seems unlikely, but I think [there’s] a decent chance we see something later this year on banking at the federal level.”
However, Loadholt of Ice Miller, who served as senior counsel to the U.S. House Committee on Financial Services and advised House members on cannabis banking, says he now has “less faith” that the most recent version of the bill, known as SAFE Banking Plus, will get done.
“I actually saw [Biden’s announcement] as an ability [for the administration] to say that we’ve done something and to point to that something knowing the legislative options are becoming limited and the window is closing, and the votes probably aren’t there,” Loadholt says, referring to the potential for congressional cannabis policy reform. “You did not want to walk into a midterm or before there may be a leadership shift with nothing in hand.
“It wasn’t nothing, but it wasn’t the something that people hoped for.”