US Health and Human Services Department Recommends Cannabis Reclassified to Schedule III

Updated at 12:19 p.m. Aug. 31 

A top official at the U.S. Department of Health and Human Services (HHS) recommended in an Aug. 29 letter to the Drug Enforcement Administration (DEA) that cannabis should be reclassified as a Schedule III drug under the Controlled Substances Act (CSA).

This news, first reported by Bloomberg, has wide-ranging implications for the cannabis industry, including a shift in federal policy that would recognize cannabis as having medical value should the DEA take up the HHS on its recommendation.

"Following the data and science, HHS has expeditiously responded to President Biden’s directive to HHS Secretary [Xavier] Becerra and provided its scheduling recommendation for marijuana to the DEA on August 29, 2023," an HHS spokesperson said in a written statement sent to Cannabis Business Times. "This administrative process was completed in less than 11 months, reflecting this department’s collaboration and leadership to ensure that a comprehensive scientific evaluation be completed and shared expeditiously.

Should cannabis be reclassified as Schedule III it would break ties with “high abuse” substances like heroin, LSD, methaqualone and ecstasy, and instead join the likes of ketamine or acetaminophen products containing codeine. But the DEA has final authority over rescheduling drugs.

"We can confirm DEA received a letter from the Department of Health and Human Services providing its findings and recommendation on marijuana scheduling, pursuant to President Biden’s request for a review.  As part of this process, HHS conducted a scientific and medical evaluation for consideration by DEA. DEA has the final authority to schedule or reschedule a drug under the Controlled Substances Act. DEA will now initiate its review," a DEA spokesperson said in a written statement sent to CBT. The spokesperson declined to confirm the Schedule III recommendation. 

Reclassifying cannabis under the CSA would ease certain tax burdens on state-licensed cannabis operators, including lifting the 280E tax code that prohibits cannabis companies from deducting everyday expenses related to running their businesses.

The HHS recommendation comes after President Joe Biden directed in October 2022 Secretary Becerra and Attorney General Merrick Garland to initiate an administrative process to review how cannabis is scheduled under federal law. Specifically, the HHS was tasked with overseeing a medical and scientific analysis of cannabis. The department coordinated this review with the U.S Food and Drug Administration (FDA), which considered eight factors before making a determination for the control status recommendation.

According to federal statute, these eight factors include:

1. Its actual or relative potential for abuse;
2. Scientific evidence of its pharmacological effect, if known;
3. The state of current scientific knowledge regarding drug and other substances;
4. Its history of current pattern of abuse;
5. The scope, duration and significance of abuse;
6. What, if any, risk there is to the public health;
7. Its psychic or physiological dependence liability; and
8. Whether the substance is an immediate precursor of a substance already controlled.
   

Now with the HHS recommendation, the DEA is responsible for coming up with a final decision, but there is no deadline for this process set by the Biden Administration.

"The process already exists and has been undertaken countless times for other substances," said Shane Pennington, partner at Porter Wright Morris & Arthur LLP and well-known cannabis policy advocate and expert. "[There is] no deadline for DEA to act, that's true. Historically, the whole process has taken an average of 9.2 years to complete, with HHS taking an average of 2.4 years to get their recommendation to DEA. We're moving fast, but we still have a ways to go."

 

Should the DEA follow through with the HHS recommendation and reclassify cannabis as Schedule III, trafficking it or an adulterated version of it, would remain a criminal penalty, according to Rezwan Khan, president of DNA Genetics and executive chair and president of trade association Global Alliance for Cannabis Commerce.

“Currently, there are FDA-approved drugs containing CBD and synthetic THC, so any product containing those molecules is an adulterated drug and could constitute criminal manufacture, distribution, etc., of a controlled substance,” he wrote in November 2022. “State adult-use markets would also be subject to FDA oversight and traditional pharmaceutical channels of distribution.”

RELATED: Rescheduling Is Recriminalizing, Descheduling Is Decriminalizing

Pennington said most people believe reclassifying cannabis to Schedule III would make cannabis an FDA-controlled drug, but that's one of the biggest myths circulating right now. "Cannabis already is an FDA-controlled drug. FDA has jurisdiction over cannabis today and will continue to regardless of what schedule (if any) it's on," he said. "The reason the industry doesn't worry about FDA right now is because the federal government isn't enforcing the [Federal Food, Drug, and Cosmetic Act] against cannabis companies and hasn't for some time (with the exception of a couple of warning letters to CBD companies who claim their products cure or treat various illnesses)." 

The FDCA is "a set of United States (US) laws that authorize the Food and Drug Administration (FDA) to oversee and regulate the production, sale, and distribution of food, drugs, medical devices, and cosmetics," according to the National Institutes of Health. 

"Bottom line," said Pennington, "Schedule I isn't protecting cannabis or cannabis companies from any federal enforcement or oversight. It's the most restrictive classification possible under federal law. Moving cannabis to schedule III would not add a single requirement to it federally. Not one."

Despite some misconceptions and many unknowns, industry stakeholders expressed enthusiasm about the possibilities of this incremental reform, several calling it "historic."

In a public statement provided to Cannabis Business Times, Verano founder and CEO George Archos said, “It’s about damn time.”

“We at Verano are incredibly excited to hear the news that the Department of Health and Human Services is calling for the rescheduling of cannabis to schedule III,” he said. “For far too long, cannabis prohibition and its outdated status as a schedule I substance have unduly harmed countless individuals affected by the failed war on drugs. As one of the nation’s fastest-growing industries employing half a million people and contributing hundreds of millions of dollars to local communities, states and economies every year, Verano is energized by the opportunity to reach its full potential and provide additional economic and social impact across the U.S."

Krane called this a "historic announcement," as it marks "the first time that a government agency, the Department of Health and Human services no less, has recognized that cannabis has medicinal value and a lower potential for abuse," Krane told CBT in an email. "This was the result of a nearly yearlong investigation and marks one of, if not the, most comprehensive reviews ever conducted by the federal government on the issue. 

"In the short term, this has no major impact on the cannabis industry because the DEA now still has to conduct its own review and decide whether to follow the HHS recommendation. But given that this was called for by the president himself, it seems highly probable that cannabis will be moved to Schedule III sometime in the next year, likely before the 2024 presidential election." 

US Cannabis Council Executive Director Edward Conklin said he “enthusiastically welcomes” the news, too.

“We believe that rescheduling to Schedule III will mark the most significant federal cannabis reform in modern history,” he said. “President Biden is effectively declaring an end to Nixon's failed war on cannabis and placing the nation on a trajectory to end prohibition. Cannabis should have never been scheduled alongside heroin and placed at the center of our nation's destructive drug war. Thankfully that era is coming to a close and is being replaced by a modern and scientific approach to regulating this plant.”

Conklin added that state-licensed cannabis businesses of all shapes and sizes will benefit from this HHS recommended reform.

U.S. Rep. Earl Blumenauer (D-OR), founder and co-chair of the Congressional Cannabis Caucus and a longtime leader in national cannabis reform, Tuesday released the following, less enthusiastic statement, emailed to Cannabis Business Times, in response to the HHS recommendation: “This is a step in the right direction but it is not sufficient. I hope it is followed by more significant reforms. This is long overdue.” 

Amber Littlejohn, of counsel at law firm Ice Miller and former executive director of Minority Cannabis Business Association, also had a more moderated reaction. "While ideally the news from the administration would be the end to federal cannabis prohibition, today’s news is still a big step in the right direction," she told CBT in an email. "Today's news is good for the cannabis industry."

"It's one of the biggest events in the history of

American drug law. It's hard to overstate what a big deal it is."

- Shane Pennington, partner at Porter Wright Morris & Arthur LLP

When asked about some industry constituents' fears about a possible big-pharma takeover under a Schedule III classification (with Schedule III drugs requiring a prescription), Littlejohn commented, "There is no change to the status quo. The industry would still be in limbo. To substantiate the fears would require believing the administration would begin enforcing cannabis laws against state regulated businesses when two-thirds of democratic voters and the majority of Americans support legalization.

"I think there were indications that [Schedule] III or IV would be the most likely destination for any kind of administrative rescheduling. III or IV, not II, was key, and I think this is a strong recommendation," Loadholt told CBT. "This is a significant step toward legalizing and normalizing cannabis … The fact that they did this in August tells me there is some urgency in this White House."  

Pennington was surprised by how quickly HHS acted. "What did surprise me is that it happened today," he said, referring to the HHS Secretary Becerra's comment earlier this year that it "would
be likely the end of the year before we get our recommendation to DEA," Pennington noted. "And even that was fast. That was like 50% faster than the historical average for them to get this kind of work done. And on something so controversial where there's so much that's already been said, and the agency really has to sift through a lot of stuff to be able to make a case for making a change like this that they know everybody's going to look at. So it just shows you what a high priority this is that they got this out so fast."

CBT Digital Editor Eric Sandy contributed to this article. This is a developing story and will be updated.