Bloomberg Report: HHS Recommends Marijuana Move to Schedule III

Foley Hoag LLP - Cannabis and the Law

Bloomberg News is reporting that the Department of Health and Human Services has recommended to the U.S. Drug Enforcement Administration, to whom power is delegated under the Controlled Substances Act by the Attorney General, that cannabis be re-scheduled to Schedule III of the Controlled Substances Act. The recommendation is apparently based on a scientific and medical review by the Food and Drug Administration ordered last year by President Biden. If true, the FDA’s new findings would reverse the agency’s determination as recently as 2016 that cannabis should remain a Schedule I Controlled Substance when a rescheduling petition was denied. Schedule I controlled substances have a high potential for abuse with no accepted medical use in the US and a lack of accepted safety for use under medical supervision.  As we all know, that is an inappropriate classification for cannabis.

If the Bloomberg report is true, HHS’ recommendation would be binding on the DEA as to “scientific and medical matters,” but the authority to reschedule rests with DEA. To reschedule cannabis to Schedule II, the DEA would have to conduct a formal rulemaking procedure under the federal Administrative Procedure Act, which a lengthy process requiring, among other things, notice of proposed rulemaking and acceptance of public comments. Any final rule would be subject to challenge in court. As part of this process of accepting the HHS recommendation, the DEA must also take into consideration the government’s obligation to comply with the UN Single Convention on Narcotics, which would not permit any signatory nation to schedule cannabis lower than Schedule II. Moreover, a move to Schedule III does not decriminalize cannabis on a federal level, nor does it decriminalize or regulate state-sanctioned cannabis operators.

That said, the potential for a reclassification of cannabis under the Controlled Substances Act is monumental. Among other things, rescheduling would remove state-legal cannabis businesses from the crippling effect of Section 280 of the Internal Revenue Code, allowing them to deduct business expenses like any other business. Rescheduling may reinvigorate capital markets and could cause Nasdaq and NYSE to re-evaluate their position prohibiting the listing of plant-touching U.S. companies. It’s also likely that we could see a refresh of the “Cole Memorandum” issued by Attorney General Garland in the coming weeks or months that could provide more concrete guidance on the legality of the state-level cannabis industry, banking and capital markets.  The implications for drug development overseen by the FDA are many.  If the news is true, this may be the first step – finally – toward cannabis normalization.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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