I. INTRODUCTION
Marijuana is currently a Schedule I substance under the Controlled Substances Act of 1970 (“CSA”), the classification used for the most dangerous drugs, but the Department of Justice (DOJ) has moved to reclassify marijuana as a Schedule III drug. The Drug Enforcement Agency (“DEA”) held a preliminary hearing on the rescheduling rulemaking on December 2, 2024, which is discussed below, and the merits hearing on the rescheduling will begin in January 2025. This article discusses the CSA’s classification framework, the steps the federal government has taken to reclassify marijuana as a Schedule III substance, and the implications of reclassifying marijuana as a Schedule III drug.
II. BACKGROUND ON FDA CLASSIFICATIONS
The CSA “places all substances which were in some manner regulated under existing federal law into one of five schedules.”1 These are “known as schedules I, II, III, IV, and V.”2 The placement of a substance in a schedule is “based upon the substance’s medical use, potential for abuse, and safety or dependence liability.”3
A Schedule I substance “has a high potential for abuse,” “has no currently accepted medical use in treatment in the United States,” and “[t]here is a lack of accepted safety for the use of the drug or other substance under medical supervision.”4 Examples of Schedule I substances include: heroin, lysergic acid diethylamide (LSD), marijuana (cannabis), ecstasy, methaqualone, and peyote.5 At the other end of the spectrum, a Schedule V substance “has a low potential for abuse relative to the drugs or other substances in schedule IV,” “has a currently accepted medical use in treatment in the United States,” and “[a]buse of the drug or other substance may lead to limited physical dependence or psychological dependence relative to the drugs or other substances in schedule IV.”6 Examples of Schedule V substances include: cough preparations with less than 200 milligrams of codeine or per 100 milliliters (e.g., Robitussin AC), Lomotil, Motofen, Lyrica, and Parepectolin.7
Relevant here, a Schedule III substance “has a potential for abuse less than the drugs or other substances in schedules I and II,” “has a currently accepted medical use in treatment in the United States,” and “[a]buse of the drug or other substance may lead to moderate or low physical dependence or high psychological dependence.”8 Examples of Schedule III drugs include: products containing less than 90 milligrams of codeine per dosage unit (e.g., Tylenol with codeine), ketamine, anabolic steroids, and testosterone.9
“The CSA also provides a mechanism for substances to be controlled (added to or transferred between schedules) or decontrolled (removed from control).”10 The CSA gives the Attorney General authority, delegated to the DEA,11 to control and decontrol substances.12 In making such a determination, the Attorney General is required to consider the following factors: (1) The substance’s “actual or relative potential for abuse”; (2) “Scientific evidence of its pharmacological effect”; (3) “The state of current scientific knowledge regarding the drug or other substance”; (4) “Its history and 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.”13 Proceedings to add, delete, or change the schedule of a substance may be initiated by the DEA, the Department of Health and Human Services (“HHS”), or by petition from any interested party.14
If a substance is classified as a Schedule III substance, it can be prescribed only if it is approved by the FDA.15 As a result, marijuana will need FDA approval before it can be lawfully “introduce[d] or deliver[ed] for introduction into interstate commerce.”16 Once a Schedule III substance is approved by the FDA, it may be dispensed but only with “a written or oral prescription,” and “[s]uch prescriptions may not be filled or refilled more than six months after the date thereof or be refilled more than five times after the date of the prescription unless renewed by the practitioner.”17 Additionally, the CSA delegates to the Attorney General the responsibility to register manufacturers and distributors of Schedule III, IV, and V substances “unless he determines that the issuance of such registration is inconsistent with the public interest.”18
III. BACKGROUND ON MARIJUANA RECLASSIFICATION
On October 6, 2022, President Biden called for administrative review of marijuana’s classification under federal law.19 President Biden called on the Secretary of HHS and the Attorney General to “initiate the administrative process to review expeditiously how marijuana is scheduled under federal law,” noting that “[f]ederal law currently classifies marijuana in Schedule I of the Controlled Substances Act, the classification meant for the most dangerous substances.”20 President Biden noted, however, that “important limitations on trafficking, marketing, and under-age sales should stay in place.”21
On August 29, 2023, the Secretary of HHS recommended that the DEA reclassify marijuana from a Schedule I substance to a Schedule III substance based on input from the Food and Drug Administration (“FDA”).22 The Secretary explained that, based on a scientific and medical evaluation, “[m]arijuana meets the findings for control in Schedule III set forth in 21 U.S.C. 812(b)(3).”23 The DEA’s stated position has been that it is bound by the FDA’s recommendations on scientific and medical matters. In addition, the Congressional Research Service (“CRS”) reports that it is not aware of any instances where the DEA rejected an FDA recommendation to reschedule a substance.24
On May 16, 2024, the DOJ announced that, after receiving HHS’s recommendations, Attorney General Merrick Garland submitted to the Federal Register a Notice of Proposed Rulemaking (“NPRM”) to move marijuana with tetrahydrocannabinol (“THC”) content over .3 percent from Schedule I to Schedule III.25 The NPRM states that the DOJ “proposes to transfer marijuana from schedule I … to schedule III …, consistent with the view of [HHS] that marijuana has a currently accepted medical use as well as HHS’s views about marijuana’s abuse potential and level of physical or psychological dependence.”26
The NPRM triggered a formal rulemaking process that began with a notice to the public and was followed by a period for public comment.27 The process concludes with a hearing at which an Administrative Law Judge (“ALJ”) rules on whether to adopt the regulation.28
On December 2, 2024, the DEA’s Chief ALJ, Judge John Mulrooney, II, held a preliminary hearing on the final regulation.29 He outlined the procedures and evidentiary rules that would be used at the merits hearing, which is set to take begin in mid-January, proceeding “for as long as it takes.”30 Judge Mulrooney indicated that designated participants will be allowed 90 minutes for testimony from a witness they selected, and opposing parties may cross-examine that witness for 20 minutes.31 The DEA, as the proponent of the rule, will be allowed at least two witnesses.32 Judge Mulrooney explained that the purpose of the hearing is not to determine “whether marijuana is good or marijuana is bad” and that the focus is instead on the factors relevant to rescheduling, such as the substance’s potential for abuse.33 The hearing will be governed by the Administrative Procedures Act.34 There is no exact date by which Judge Mulrooney will rule on the final regulation.
The final regulation, if adopted, will be subject to judicial review in federal court.35 Federal courts may set aside agency regulations on a variety of grounds, including that they are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”36
Since the DOJ published the NPRM, approximately 43,000 public comments have been submitted.37 The deadline for submitting comments ended on July 22, 2024. According to one publication, approximately 69 percent of the commenters want the proposed rule change to go further and for marijuana to be decriminalized or legalized.38 The DEA will use these comments to inform its final position on rescheduling marijuana, which will take the form of a recommendation to the ALJ. In a similar situation involving telemedicine regulations, it took the DEA over a year to establish its final position,39 but in contrast, here, the DEA appears to have a desire to move more quickly with respect to rescheduling of marijuana.
Given the DEA’s stated position of deferring to the FDA’s “recommendations on scientific and medical matters,” the CRS has stated that “if past is prologue it could be likely that DEA will reschedule marijuana according to HHS’s recommendation.”40 However, the NPRM does not contain an express DEA endorsement of the proposed rescheduling. NPRMs like this one are typically signed by the DEA Administrator, but the current DEA Administrator, Anne Milgram, did not sign the rescheduling action—potentially signaling a tension between the DOJ and DEA’s stance on rescheduling.41 The NPRM also states that the “DEA has not yet made a determination as to its views of the appropriate schedule for marijuana” and that the “DEA believes that additional information arising from this rulemaking will further inform the findings regarding the appropriate schedule for marijuana.”42
Some have also noted that the Single Convention on Narcotic Drugs (1961), to which the U.S. is a signatory, requires that marijuana be controlled in a manner not unlike a Schedule I or II substance.43 The CSA requires the Attorney General to follow that treaty, stating that “the Attorney General shall issue an order controlling [substances] under the schedule he deems most appropriate to carry out such [treaty] obligations.”44 This provision poses a potential hurdle to rescheduling and may also render the final regulation susceptible to challenge in federal court on the ground that it is “not in accordance with law.”45 Indeed, U.S. Senator Mitt Romney and other members of the Senate Committee on Foreign Relations sent the DEA a letter in March 2024, asserting that “[i]n prior rescheduling proceedings, the DEA has determined that section 811(d) requires it to classify marijuana as a schedule I or II drug in order to comply with our treaty obligations under the Single Convention.”46 But the Office of Legal Counsel (“OLC”) has issued an opinion that the Single Convention on Narcotic Drugs does not require that marijuana be placed in Schedule I or II, explaining that the DEA could satisfy the United States’ obligations under the Single Convention by “imposing additional controls pursuant to the CSA’s regulatory authorities,” such as imposing quotas on the import and manufacture of marijuana.47
The outcome of the 2024 elections likely will not pose a hurdle to reclassification. In September 2024, President-elect Donald Trump announced on his social-media platform, Truth Social, that “[a]s President, we will continue to focus on research to unlock the medical uses of marijuana to a Schedule 3 drug, and work with Congress to pass common sense laws, including safe banking for state authorized companies, and supporting states rights to pass marijuana laws, like in Florida, that work so well for their citizens.”48 If, however, President-elect Trump decided to reverse course, he could appoint new agency officials who are opposed to rescheduling and issue an executive order directing the DEA, HHS, or FDA to re-consider the rescheduling of marijuana.49
Some have predicted that President-elect Trump will further loosen regulations on marijuana. In an interview shortly after the election, Chris Christie stated that he expected that what President-elect Trump “would really like to do is get [marijuana] downgraded by the DEA so that it’s not illegal.”50 Christie further commented, “What I think Trump will attempt to do, which I don’t favor, is change marijuana to a non-scheduled drug that wouldn’t be illegal, and then banks and other institutions would be more free to do business with cannabis store owners and entrepreneurs.”51
Nevertheless, Pam Bondi, President-elect Trump’s most recent pick for Attorney General, has what some have described as an “anti-marijuana record.”52 For example, in 2014, Bondi challenged the wording of a Florida bill that ultimately legalized medical marijuana, arguing that voters would be tricked into approving widespread use of medical marijuana.53
IV. WHAT ARE THE CONSEQUENCES OF RESCHEDULING MARIJUANA?
The CRS has identified a number of likely consequences of rescheduling marijuana: (1) manufacturers, distributors, dispensers, and possessors of medical marijuana may be able to do so lawfully; (2) state medical-marijuana programs would be able to comply with federal law; (3) FDA oversight and research would increase; (4) producers and retailers would be able to claim tax deductions on federal income tax filings for payroll, rent, and advertising; (5) users would be eligible for public housing, visas, and firearms; (6) research opportunities would increase; (7) DEA quota limitations might go away; and (8) users may face less barriers to federal employment and military service.54 Some of these consequences and others are discussed in more detail below.
Marijuana Would Remain Unlawful Under Federal Law. Even if marijuana is moved to Schedule III, it would still remain illegal under federal law for both medical and recreational purposes—making it unlikely that rescheduling will create a pathway to federal compliance for “state legal” marijuana businesses. This is because, as noted above, Schedule III substances are available only via prescription provided they have received FDA approval.55
Rescheduling marijuana as a Schedule III substance will result in increased federal regulation of the substance. The federal government could create a pathway for FDA-approved marijuana-based drugs to be available for prescription.56 “To date, the FDA has not approved a marketing application for cannabis for the treatment of any disease or condition.”57 But the FDA has approved one cannabis-derived drug product, Epidiolex (cannabidiol), and three synthetic cannabis-related drug products: Marinol (dronabinol), Syndros (dronabinol), and Cesamet (nabilone).58 “These approved drug products are only available with a prescription from a licensed healthcare provider.”59
The federal government could also expand medical research opportunities, and medical-marijuana manufacturers and distributors could apply for research grants to study specific medical uses. Medical providers could also request approval to prescribe certain marijuana-based drugs.
The federal government’s role in regulation would also likely affect state compliance programs. Marijuana companies that comply with state programs would still not be legal at the federal level unless they also seek and receive federal approval. A person needs a prescription to obtain a Schedule III substance under the CSA, and currently state programs do not authorize doctors to prescribe medical marijuana. Instead, these programs authorize doctors to recommend or authorize the use of medical marijuana.60 As a result, medical marijuana would remain illegal at the federal level unless and until companies or providers go through the new federal framework and receive approval at the federal level to prescribe marijuana. There would likely be significant costs associated with obtaining such approval.61 Additionally, legalizing marijuana at the federal level likely remains at least a few years away because the federal government would first need to propose a framework, open its proposal to public comment and political scrutiny, and then review companies’ applications for federal approval.
Effect on Recreational Marijuana. Rescheduling marijuana would not result in the decriminalization or legalization of recreational, as opposed to medical, marijuana at the federal level. Similarly, persons who use recreational marijuana would remain ineligible for federal security clearances.62 That is because Schedule III substances are regulated as medical substances and may not be used legally without a prescription.63 Some commentators are optimistic that rescheduling will open the door to recreational legalization or, at least, decreased criminal penalties. But overall, as one publication noted, the most immediate result of reclassifying marijuana as a Schedule III substance is that the recreational market will be in “legal limbo.”64
Impact On Taxation and Banking For Marijuana Businesses. Because marijuana remains illegal at the federal level, financial institutions that provide services to marijuana businesses risk civil seizure and forfeiture of assets under money laundering and racketeering violations and the Racketeer Influenced Corruption Organizations Act of 1970 (“RICO”). As reported by the Associated Press (“AP”), a spokesperson for the American Bankers Association stated, “Any potential decision from the administration to reclassify cannabis has no bearing on the legal issues around banking cannabis.”65 He continued: “Cannabis would still be illegal under federal law, and that is a line many banks in this country will not cross.”66
Nevertheless, some have predicted that rescheduling marijuana may embolden more financial institutions to offer banking to marijuana businesses,67 although it is likely that many financial institutions will await passage of federal legislation that would authorize them to do so. On that front, Congress will need to pass the Safe Banking Act, formally known as the Secure and Fair Enforcement Banking Act of 2023 (“Safe Banking Act”), which aims to resolve banking challenges faced by marijuana businesses.68 The Safe Banking Act would, among other things, protect banks and credit unions from being penalized by federal banking regulators for providing services to state-regulated marijuana businesses.69 It would also clarify that proceeds from marijuana-related transactions are not considered proceeds from unlawful activities and are not subject to anti-money laundering laws.70 On September 27, 2023, the Safe Banking Act made it out of the Senate Banking Committee (by a vote of 14-9). In order for the Safe Banking Act to pass, the Senate will still need to reach consensus on it, and then it would need to move through a currently Republican-controlled House.71
Finally, under section 280E of the Internal Revenue Code, marijuana businesses are prohibited from taking deductions or credits for their expenditures.72 That statute provides, “[n]o deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”73 Recently, in June 2024, the Internal Revenue Service (“IRS”) “reminded taxpayers that marijuana remains a Schedule I controlled substance and is subject to the limitations of Internal Revenue Code.”74 The IRS further explained that “[u]ntil a final rule is published, marijuana remains a Schedule I controlled substance and is subject to the limitations of Internal Revenue Code Section 280E.”75 The IRS likely did this in response to taxpayers who were filing amended returns in light of the potential rescheduling of marijuana as a Schedule III substance. If marijuana is rescheduled as a Schedule III substance, however, then section 280E will no longer apply to marijuana-related businesses, and those businesses could begin to take advantage of all lawful deductions. This could have a significant impact for state-licensed marijuana businesses, as some industry groups estimate that the effective tax rate for those businesses is 70 percent or more.76
Transport Across State Lines. As discussed above, absent FDA approval, marijuana could not lawfully be “introduce[d] or deliver[ed] for introduction into interstate commerce.”77 As a result, rescheduling marijuana will not permit transport across state lines, although it may embolden states and state-licensed sellers to test federal enforcement. For example, Hawaii has tested federal authorities’ desire to enforce prohibitions transporting marijuana in interstate commerce. In June 2023, Hawaii passed House Bill 1082, permitting inter-island commerce of marijuana by state-licensed businesses.78 Companies seeking to invoke House Bill 1082 must cross federal waters and risk facing federal penalties. Rescheduling, however, may cause the DOJ to relax its prosecution of marijuana-related crimes, emboldening marijuana businesses to transport the substance across state lines.
V. CONCLUSION
In sum, rescheduling marijuana as a Schedule III substance, standing alone, will not make medical marijuana legal and rescheduling will not provide a pathway for legalizing recreational marijuana. It would have some beneficial consequences for marijuana businesses and could open the door to larger changes.
***
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1 https://www.dea.gov/drug-information/csa; see 21 U.S.C. § 812(a).
2 21 U.S.C. § 812(a).
3 https://www.dea.gov/drug-information/csa.
4 21 U.S.C. § 812(b)(1).
5 https://www.dea.gov/drug-information/drug-scheduling.
6 21 U.S.C. § 812(b)(5).
7 https://www.dea.gov/drug-information/drug-scheduling.
8 21 U.S.C. § 812(b)(3).
9 https://www.dea.gov/drug-information/drug-scheduling.
10 https://www.dea.gov/drug-information/csa.
11 28 C.F.R. § 0.100(b).
12 21 U.S.C. § 811; https://www.dea.gov/drug-information/csa.
13 21 U.S.C. § 811(c).
14 https://www.dea.gov/drug-information/csa.
15 21 U.S.C. § 355(a).
16 Id.
17 21 U.S.C. § 829(b).
18 21 U.S.C. § 823(e), (f).
19 https://www.whitehouse.gov/briefing-room/statements-releases/2022/10/06/statement-from-president-biden-on-marijuana-reform/.
20 Id.
21 https://www.whitehouse.gov/briefing-room/statements-releases/2022/10/06/statement-from-president-biden-on-marijuana-reform/.
22 https://www.hhs.gov/sites/default/files/scheduling-recommendation.pdf.
23 Id.
24 Department of Health and Human Services Recommendation to Reschedule Marijuana: Implications for Federal Policy at 1-2 (Sep. 13, 2023) https://crsreports.congress.gov/product/pdf/IN/IN12240.
25 21 CFR Part 1308, Docket No. DEA-1362; A.G. Order No. 5931-2024; https://www.justice.gov/opa/pr/justice-department-submits-proposed-regulation-reschedule-marijuana.
26 21 CFR Part 1308, Docket No. DEA-1362; A.G. Order No. 5931-2024 at 1.
27 Id.
28 Id. at 3-6; 21 U.S.C. § 811(a); 21 CFR § 1308.45.
29 https://www.federalregister.gov/documents/2024/08/29/2024-19370/schedules-of-controlled-substances-rescheduling-of-marijuana. The video for the preliminary hearing is available at https://www.youtube.com/watch?v=GBMHWru0FNo.
30 https://www.youtube.com/watch?v=GBMHWru0FNo; see also https://www.law360.com/articles/2267894/dea-asserts-its-role-as-proponent-of-pot-rescheduling-plan; https://www.law360.com/articles/2266013/amid-claims-of-bias-dea-to-kick-off-historic-pot-hearing.
31 Id.
32 Id.
33 Id.
34 Id.
35 5 U.S.C. § 702.
36 5 U.S.C. § 706(2)(A).
37 https://www.federalregister.gov/documents/2024/05/21/2024-11137/schedules-of-controlled-substances-rescheduling-of-marijuana.
38 https://www.theguardian.com/society/article/2024/jul/27/dea-cannabis-classification.
39 https://www.dea.gov/documents/2023/2023-10/2023-10-06/dea-and-hhs-extend-telemedicine-flexibilities-through-2024.
40 Department of Health and Human Services Recommendation to Reschedule Marijuana: Implications for Federal Policy at 1 (Sep. 13, 2023) https://crsreports.congress.gov/product/pdf/IN/IN12240.
41 https://www.ropesgray.com/en/insights/alerts/2024/05/doj-proposes-rescheduling-marijuana-but-the-outlook-for-finalization-is-hazy.
42 https://www.federalregister.gov/documents/2024/05/21/2024-11137/schedules-of-controlled-substances-rescheduling-of-marijuana.
43 https://www.romney.senate.gov/wp-content/uploads/2024/03/3.27.24_Letter-to-DEA-Final.pdf.
44 21 U.S.C. § 811(d)(1).
45 5 U.S.C. § 706(2)(A).
46 https://www.romney.senate.gov/wp-content/uploads/2024/03/3.27.24_Letter-to-DEA-Final.pdf.
47 https://www.justice.gov/olc/media/1352141/dl?inline.
48 https://truthsocial.com/@realDonaldTrump/posts/113105431683796730.
49 https://crsreports.congress.gov/product/pdf/LSB/LSB10655?link_id=2&can_id.
50 https://www.benzinga.com/markets/cannabis/24/11/41910180/exclusive-chris-christie-says-trump-will-remove-federal-restrictions-on-marijuana-find-sweet-spot-for-crypto-regulation.
51 Id.
52 https://mjbizdaily.com/new-trump-attorney-general-pick-pam-bondi-has-anti-marijuana-record/. President Trump’s initial pick for Attorney General, Matt Gaetz, had pro-marijuana record, having been the sole Republican in the House of Representatives to co-sponsor the Marijuana Opportunity Reinvestment and Engagement (“MORE”) Act, which aimed to legalize marijuana at the federal level. https://www.cannabisbusinesstimes.com/top-stories/news/15708291/trumps-pick-for-attorney-general-promising-for-cannabis-policy-rescheduling.
53 https://mjbizdaily.com/florida-mmj-petition-drive-hits-its-goal/.
54 Department of Health and Human Services Recommendation to Reschedule Marijuana: Implications for Federal Policy at 2-3 (Sep. 13, 2023) https://crsreports.congress.gov/product/pdf/IN/IN12240.
55 21 U.S.C. § 355(a).
56 21 U.S.C. § 355(a).
57 https://www.fda.gov/news-events/public-health-focus/fda-and-cannabis-research-and-drug-approval-process.
58 Id.
59 Id.
60 https://www.cdc.gov/cannabis/about/state-medical-cannabis-laws.html.
61 https://crsreports.congress.gov/product/pdf/LSB/LSB11227.
62 https://news.clearancejobs.com/2024/10/15/cleared-for-cannabis-what-rescheduling-could-mean-for-clearance-holders/.
63 21 C.F.R. § 1306.21(a).
64 https://www.latimes.com/opinion/story/2024-09-24/cannabis-drug-overdose-joe-biden.
65 https://apnews.com/article/marijuana-biden-reschedule-banks-illegal-f298832392d3e7aedb066204ecef792b.
66 Id.
67 https://greencheckverified.com/how-would-rescheduling-marijuana-affect-cannabis-banking/.
68 https://www.herringbank.com/business-banking/cannabis-banking/safe-banking-act/.
69 Id.
70 Id.
71 https://www.reuters.com/legal/litigation/what-would-passage-safer-banking-act-mean-2024-2024-03-13/.
72 IRC § 280E (emphasis added); https://www.irs.gov/newsroom/irs-marijuana-remains-a-schedule-i-controlled-substance-internal-revenue-code-section-280e-still-applies.
73 Id.
74 https://www.irs.gov/newsroom/irs-marijuana-remains-a-schedule-i-controlled-substance-internal-revenue-code-section-280e-still-applies.
75 Id.
76 https://thehill.com/homenews/nexstar_media_wire/4668938-marijuana-may-soon-be-a-schedule-iii-drug-what-will-change/.
77 Id.
78 https://legiscan.com/HI/text/HB1082/id/2667280/Hawaii-2023-HB1082-Introduced.html.