U.S. Acting Attorney General Todd Blanche’s announcement on April 23 that he had signed an order to “immediately” reschedule FDA-approved cannabis products and state-licensed medical cannabis from Schedule I to Schedule III under the Controlled Substances Act (CSA) came with a requirement that left many cannabis business operators suspicious and even fearful.
That requirement stipulated that state-licensed medical cannabis businesses must register their operations with the Drug Enforcement Administration (DEA) to become Schedule III compliant. A big perk of Schedule III compliance is Section 280E tax relief, although some industry constituents have debated in recent weeks whether the DEA registration is required for that tax relief.
This risk-reward scenario of federal registration is playing out following decades of prohibition and a mistrust in the DEA and government policies toward the plant and those who cultivate, distribute and sell it.
While some companies – including Trulieve, Verano and Green Thumb Industries – wasted little time in submitting their application for the Schedule III registration when the DEA Diversion Control Division opened the registration portal for dispensaries on April 29, others told Cannabis Business Times (CBT) and posted on social media that registering with the DEA felt counterintuitive to the fear of the DEA that has been ingrained in them, in some cases over generations. (The DEA will open a separate Schedule III registration portal for state-licensed medical cannabis cultivators, manufacturers, testing labs and distributors in the “coming weeks,” CBT reported on May 11.)
One part of the application in particular raised red flags. Under the DEA's Medical Marijuana Dispensary Information Submission form’s Section 4, with the header “Liability Questions,” was the question: "Has anyone who will be involved in the ownership or operation of the firm previously manufactured, distributed, and/or dispensed any controlled substance without a DEA registration authorizing such activity?" Businesses that answer “yes” are then required to provide the names of each person involved and a “brief explanation.”
Almost all dispensaries filling out this form (with exceptions for businesses that are licensed but are not yet operational) would have previously dispensed a controlled substance without DEA authorization, as they were operating solely under state law.
In other words, the question is essentially asking cannabis businesses to admit to drug trafficking, as CBT reported on April 30.
In an effort to provide clarity on the intent behind this question, why it falls under the form’s “Liabilities” section, and what actions, if any, would be taken against those who answer “yes” to the question, CBT reached out to the DEA on April 29. After several follow-up attempts with no response, the DEA Media Affairs team responded to CBT’s inquiry via email, stating, “This question should be understood as part of a standard information-gathering process being applied in a changing regulatory landscape. It is not intended to serve as a categorical barrier, but rather to support a complete and fair evaluation of each application.”
The DEA added that “the broader registration process is designed to evaluate applicants based on their current ability to operate within the federal framework.”
CBT also asked the DEA what the intention of the question is, as well as for clarification on potential confusion regarding what the question is asking – specifically whether it is asking applicants if any of their owners or operators previously dealt in a controlled substance without DEA authorization prior to the existing medical dispensary for which they are submitting the form, or whether it is asking for anyone’s involvement prior to filling out the form.
“This question is a standard component of DEA registration applications and is intended to gather background information relevant to regulatory compliance. It is not limited to a specific timeframe,” the DEA told CBT.
The DEA also stated that it recognized that many applicants would have been previously operating under state law, but contrary to federal law – in other words, that applicants answering “yes” to the question would be admitting to operating federally illegally – and provided some somewhat-hedged insight into any consequences that admission may hold.
“DEA recognizes that, historically, federal law limited the circumstances under which marijuana-related activities could be conducted under a DEA registration. As a result, many applicants may not have previously operated under a DEA registration, even if they were operating pursuant to state law,” the DEA stated. “The purpose of the question is not to exclude those applicants – it is to ensure transparency and provide context so DEA can evaluate each application based on the totality of the information provided.”
Regarding the question’s placement under the "Liability Questions" section of the application form, the DEA stated that the placement “reflects standard application structure used to collect information related to regulatory compliance considerations. Its inclusion in this section does not, by itself, indicate that a particular response will carry determinative weight or result in an adverse outcome.”
Still, skeptical businesses wondered if this question might be a prompt to get them to admit to illegal drug trafficking, an admission that could be used against them.
In light of that concern, CBT asked the DEA to comment on what, if any, action will be taken regarding submissions for applicants who answer "yes" to this question.
“Answering ‘yes’ to this question does not result in an automatic denial of a DEA registration,” the DEA stated. “Applications are reviewed on a case-by-case basis, consistent with applicable law.”
The DEA further commented that “the application is the starting point of a broader process that includes pre-registration inspections and direct engagement with applicants. These steps allow DEA to better understand an applicant’s operations, clarify responses, and, where appropriate, identify steps needed to meet federal requirements. This process is designed to facilitate compliance with federal law while ensuring that registrants operate in a manner that protects public health and safety. Where issues arise, applicants are afforded established administrative processes, including notice and an opportunity to respond.”
