Poof! Medical cannabis was a Schedule I drug, and then it wasn’t.
So, how did President Donald Trump’s administration immediately reclassify medical cannabis as a Schedule III substance overnight, without a normal rulemaking process, a notice-and-comment period or an administrative hearing, like the one that stalled and derailed rescheduling under President Joe Biden?
Answer: The Controlled Substances Act provides for “an expedited scheduling action” where control is required by U.S. obligations under international drug treaties. U.S. Acting Attorney General Todd Blanche took that action on April 23, pursuant to the United Nations Single Convention on Narcotic Drugs, an international drug treaty.
This treaty “pathway” to medical cannabis reform, as Trulieve CEO Kim Rivers puts it, has been “used around the globe,” from Canada to Europe and Australia.
“This is an established practice,” she said.
Based in Tallahassee, Fla., Trulieve is one of the largest multistate cannabis operators in the U.S., with about 85% of its business, by stores, considered medical, Rivers said. This means the company has a major stake in the impacts of the expedited scheduling action.
One of those impacts includes partnering with the federal government through Drug Enforcement Administration (DEA) registration, granting the DEA access to cultivation and manufacturing facilities where plants are harvested and stored.
Under decades of prohibition, when the DEA shows up at a cannabis facility – state-licensed or not – it has historically spelled trouble.
Moving forward, it could represent a cordial visit that simply stems from the government’s treaty obligations to “control” supply through a purchase-and-resale mechanism that establishes a nominal price for the now reclassified substance, Rivers said.
Basically, the DEA acts as a “middleman” for a moment in time to satisfy the Single Convention’s requirement, she said.
In a highly regulated industry like cannabis, Rivers said she’s “not concerned” about having new visitors.
Here, the Trulieve chief executive shares her take on the feds’ impending access to her facilities, other treaty obligations, Section 280E tax impacts, and what’s on the horizon for U.S. clinical studies and product development.
Tony Lange: What was your take on the DOJ’s two-phase rescheduling plan, with the immediate impact for FDA-approved products and licensed medical cannabis, and then the adult-use cannabis hearing process scheduled for this summer?
Kim Rivers: I think that it is a historic action by the administration. And my read-through is that they are sending an unequivocal message of the president’s commitment to get this done and to make sure that it’s durable. That’s how I read it. So, I think that the first action was done to make sure that, at least for what they could do under the treaty pathway, which is of course very restrictive under international law, to only medical, that that pathway could be used to do something quickly. And then by restarting the rulemaking process, but with a new, very clear and defined timeframe, I think it further enacts the will of the president that was communicated through the executive order in December.
Lange: It’s a new hearing with new designated participants, but it’s still the same proposed Schedule III rule from under the Biden administration, correct?
Rivers: Yes, that’s correct.
Lange: Does Trulieve plan to participate in the hearing process?
Rivers: We have not discussed that at this point.
Lange: You mentioned Trulieve’s business is about 85% medical (by stores). Do you know if your dispensaries that offer both medical and adult-use products will have special compliance protocols now that they sell both Schedule III and Schedule I products under the same roof?
Rivers: The plain reading of the order is that any product that is medical and sold by a state-licensed dispensary is moved immediately to Schedule III. So, I think that if you are in a state and you have a medical card and you’re purchasing a product, that product is now a Schedule III product as of yesterday.
Lange: Under the April 23 order, licensed medical cannabis companies have to register with the DEA and allow the DEA to access where cannabis is stored in their facilities. Do you imagine there’s some trepidation after so many years of federal prohibition?
Rivers: Our council has advised us that there are specific requirements that the federal government has to comply with to remain in compliance with the Single Convention Treaty on Narcotic Drugs. So, there are very specific steps that have to be followed in order to maintain compliance under the treaty. One of those has to do with their ability to be able to say that they are in “control” of the marijuana supply.
And look, this treaty, let’s back up a minute, the treaty pathway, if you will, has been used around the globe for medical marijuana and the legalization of medical marijuana. I mean, it has been used by countries like Germany, the U.K., Canada, Australia, right? So, this is an established practice. I know it’s new to a lot of folks who are hearing about it maybe for the first time, but there is this established international law around the treaty and specifically with respect to medical marijuana.
Lange: What about the DEA’s obligation to “acquire and resell” the medical cannabis back to licensed companies as part of the nominal price aspect of the treaty?
Rivers: There is a legal term called constructive possession where, for a moment in time, there is a transfer where the DEA acts as a middleman for when products are leaving the cultivation part of the process and are transferred to the sale part of the process. And so, that is going to be handled through documentation. Our legal counsel isn’t concerned about it.
And my take is that the reality is that we are a highly regulated business in the states in which we operate. I’m not sure about others, but I have regulators in my facility constantly. We just had our quarterly inspection from the Department of Health in Florida at our primary cultivation facility last week. We have regulators in our stores on a very regular basis in the markets we operate in. So, I am not concerned about allowing federal authorities into our facility. And again, that is a part of the requirements, as I understand it, that have to happen to remain in compliance with the treaty.
Lange: What about the “administrative fee” that the federal government will collect as part of that middleman role?
Rivers: Our lawyers have told us that the provision behind that, it pins the fee to the cost of administering the program.
Lange: So, it’s not like they’re going to try to overtax and pin punitive fees on the industry?
Rivers: Yeah, that would not be the case.
Lange: What is your understanding of the order’s Section 280E tax implications, especially with the DOJ pushing the Treasury Department to provide “retrospective relief” to medical cannabis companies?
Rivers: I think that remains to be seen. What we know from the guidance that was issued by the Treasury yesterday, and the press release that came later in the day, is that certainly the Treasury is engaged on the issue, which is positive. And they indicated that yesterday’s order would mean that, immediately, medical cannabis businesses that are state licensed would no longer be subject to 280E, and that finding would apply to this year’s, i.e., beginning in the Jan. 1, taxable year.
So, that was clear yesterday, and I think much-appreciated, certainly by the accountants and finance departments at Trulieve anyway, that they did go ahead and issue that press release. And in that press release, it said that there’s more to come. They’re going to be issuing additional guidance on this topic in the weeks to come. And so, we just have to wait and see what they release moving forward.
Certainly, we’re hopeful that, and it would make sense that, they issue guidance and have a uniform process to address 280E taxes holistically. I know that our folks are meeting now to discuss how to handle treatment in Q1.
Lange: President Trump was adamant about scientific research in his rescheduling order. How could U.S. clinical studies help licensed companies such as Trulieve when it comes to legitimizing the medicinal value of cannabis?
Rivers: I think it has many impacts. One will be on product development. We have a number of products that would require some level of validation in order for us to be able to claim efficacy. For example, we have a time-release product that has been in development that we think would be potentially beneficial for folks who need a specific dosage throughout an extended period of time. So, potentially like a Parkinson's patient or anyone who needs to maintain a particular baseline level. We haven’t been able to bring it to market because we haven’t been able to actually do blood draws and be able to prove that the levels are, in fact, constant throughout a period of time. And so that’s one example of many that I think this order will result in the ability to do that research to have those types of products come to market and be able to stand behind them in a science-backed way.
The second part is, of course, for the medical community and the ability for scientists, whether it’s privately funded or through our research institutions in this country, to be able to do real studies that are real clinical-type trials, double-blind, et cetera, using products that Americans are actually using. Up until this point, scientists who wanted to use actual marijuana were forced to go through a Schedule I marijuana provider, and those growers were under strict protocols. For example, they had to homogenize the plant and could only give plant material to these scientists that was essentially an entire ground cannabis plant. Well, that’s nowhere near representative of what the actual finished good products are that people are using in their medical journeys. So, now scientists will actually have the ability, without fear of prosecution – it was very clear in the order – to be able to use those products to do research.
So that should result in research that has an impact on, from a scientific community perspective, they’ll be able to test those products to understand better what products, what form factors, what dosages are beneficial, not beneficial; they’ll be able to do studies on patient populations that are potentially using other non-cannabis medical products to look at contraindications or to advise physicians. If they've got a patient who is on these medications, maybe these medications either are good to layer on top of, or maybe it's not advised for those two medications to be ingested simultaneously.
So, I think a lot of these question marks that we've had around, again, whether it's specific conditions or demographics, right? Are certain populations predisposed to have either positive or negative responses to certain products or certain levels of cannabis, or over a specific time period? I think it's going to be very important for the physician and scientific community, which will then absolutely bring additional legitimacy to the industry and to companies like ours.
