The Department of Health and Human Services (HHS) has recently recommended that the federal government move marijuana to Schedule III of the Controlled Substance Act (CSA), a move that could have profound implications for cannabis consumers and the industry.
What is Schedule III and why does it matter?
Schedule III substances are drugs that have a moderate to low potential for physical and psychological dependence, and have a currently accepted medical use in treatment in the United States. Examples of Schedule III drugs include ketamine, anabolic steroids, and Tylenol with codeine.
Moving marijuana to Schedule III would mean that it would be recognized as having some medical value, and that it would be subject to less strict regulations than Schedule I drugs, which are considered to have no accepted medical use and a high potential for abuse. Examples of Schedule I drugs include heroin, LSD, and ecstasy.
How would Schedule III rescheduling affect cannabis consumers?
According to a survey conducted by the cannabis telemedicine firm NuggMD, about one-third (32%) of cannabis consumers say that if a rescheduling action were to restrict the industry by requiring retail sales to be prescription-based via pharmacies, they would risk criminal penalties by reverting to the illicit market. A slight majority (55%) of respondents said that if their only legal option was through pharmacies, they would do so.
The survey also found that 77% of respondents said they would prefer using traditional botanical products, such as cannabis flower, over an FDA-approved product, and that 70% of respondents said that they believed dispensaries would pass to consumers any tax savings brought about by new regulations.
Deb Tharp, the head of legal and policy research at NuggMD, said that the results show that consumers are at risk under the proposed rescheduling plan unless lawmakers pass legislation to preserve existing state markets.
“According to government estimates, more than 35 million Americans use cannabis on a monthly basis. Pushing more than 10 million people into the unregulated market for cannabis strikes me as a very bad outcome because black market cannabis is not safe. I don’t think the severity of this situation is entirely clear to policymakers,” Tharp said.
How would Schedule III rescheduling affect the cannabis industry?
Rescheduling would not make adult-use cannabis businesses legal under federal law, regardless of whether they comply with their own state laws. Schedule III substances are still highly regulated and not permitted to be sold without a Drug Enforcement Administration (DEA) license or used by consumers without a doctor’s prescription or other authorization. And while medical marijuana might become broadly legal if the change goes through, most states would need to overhaul their systems in order to strictly align with Schedule III restrictions.
However, rescheduling would bring at least one massive win for the existing cannabis industry. The shift would allow businesses to take standard tax deductions, which they are currently prevented from doing under IRS Tax Code Section 280E. This section prohibits businesses from deducting ordinary and necessary business expenses if they are involved in the trafficking of Schedule I or II substances. Rescheduling would also make it easier for cannabis businesses to access banking services, as financial institutions would face less risk of federal prosecution or penalties.
On the other hand, some observers worry that rescheduling could also inadvertently upend the cannabis industry by potentially incentivizing the Food and Drug Administration (FDA) to assume a more hands-on role with respect to cannabis. The FDA could impose stricter standards for product testing, labeling, packaging, and marketing, which could increase the costs and barriers to entry for cannabis businesses. The FDA could also favor pharmaceutical companies that have the resources and expertise to conduct clinical trials and obtain approval for cannabis-based drugs, which could undermine the diversity and innovation of the cannabis industry.
What are the next steps for Schedule III rescheduling?
The HHS recommendation is not binding, and it is ultimately up to the DEA and the Attorney General to decide whether to reschedule marijuana or not. The DEA has 90 days to respond to the HHS recommendation, but it could also request an extension or ignore it altogether. The DEA has historically resisted rescheduling marijuana, despite several petitions and lawsuits from advocates and lawmakers.
Many experts and activists agree that rescheduling is not enough to address the legal and social issues surrounding cannabis, and that comprehensive reform is needed to end federal prohibition and respect state rights. Several bills have been introduced in Congress to achieve this goal, such as the Marijuana Opportunity Reinvestment and Expungement (MORE) Act, which would remove marijuana from the CSA entirely and expunge past convictions. However, the prospects of passing such legislation remain uncertain, as the Senate is still divided and the Biden administration has not expressed strong support for legalization.