YOUR GUIDE TO THE LEGAL PRESENT AND FUTURE OF THE CANNABIS INDUSTRY
Cannabis: In Focus
Politico and Bloomberg both reported today that the U.S. Department of Health and Human Services (HHS) is officially recommending that marijuana be moved to Schedule III from Schedule I under the Controlled Substances Act (CSA), a historic shift that indicates the top health agency no longer considers cannabis to have high abuse potential with no medical value.
The rescheduling recommendation is not binding on the Drug Enforcement Administration (DEA), but DEA is statutorily obligated to accept HHS’s scientific and medical evaluation. If DEA decides to reschedule cannabis, the agency will go through a rulemaking process that includes a public comment period before issuing a final rule.
This development follows the completion of a scientific review into cannabis directed by President Biden last October. Marijuana is presently listed in Schedule I under the CSA, subjecting it to the greatest level of control reserved for substances deemed to have “no accepted medical use” and a “high potential for abuse.” As a result of its classification, state-licensed cannabis businesses operate under extreme regulatory burdens.
Lawyers and business professionals from Perkins Coie were instrumental in formulating the Coalition for Cannabis Scheduling Reform (CCSR), a diverse group of cannabis companies and scientific and legal authorities. In June, CCSR released a comprehensive report on the federal classification of cannabis co-authored by Andrew Kline, Co-Chair of Perkins Coie’s Cannabis Industry Group, with support from associate Tommy Tobin, and edited by paralegal Hanna Barker Mullin.
CCSR made the case in its report that marijuana is improperly placed in the same schedule as drugs like heroin and argues that the more appropriate options are to either remove the plant from the list of controlled substances altogether or reschedule it to Schedule III or below. The report outlines the scientific, economic, legal, and social justice considerations of these options compared to the status quo.
While cannabis would remain federally illegal under Schedule III, the reclassification would remove Internal Revenue Code Section 280E tax penalty, which prevents businesses “trafficking” in schedule I and II substances from taking deductions for ordinary business expenses, resulting in an effective tax rate of up to 80%. Rescheduling would eliminate this financial burden, providing much needed relief for regulated cannabis businesses. Moving cannabis out of schedule I would also eliminate a major obstacle for researchers, who presently must register with DEA to access cannabis for use in medical and scientific studies.
Perkins Coie is proud of its support for this burgeoning industry and will be working tirelessly to get this policy change over the finish line in the coming weeks.
Cannabis: In Focus
Cannabis: In Focus
On July 12, 2023, the U.S. Food and Drug Administration (FDA) released a public inventory of certain food ingredients that the agency has determined are unsafe because they are unapproved food additives that are not Generally Recognized as Safe (GRAS) when used as intended. FDA developed this inventory as part of its post-market surveillance of food ingredients. Notable ingredients included in the inventory are cannabidiol (CBD), melatonin, Delta-8-tetrahydrocannabinol (Delta-8-THC), and caffeinated alcoholic beverages. Concurrently, FDA also released lists of select chemicals in the food supply—including food ingredients, food contact substances, and contaminants under agency review.
For more details, read the Perkins Coie Update.
To receive updates like this via email, subscribe here (and make sure to check the box for “Cannabis Law”).
Cannabis: In Focus
The Coalition for Cannabis Scheduling Reform (CCSR) recently released its comprehensive report on the federal classification of cannabis, co-authored by Perkins Coie Cannabis industry group co-chair Andrew Kline, with support from associate Tommy Tobin, and edited by paralegal Hanna Barker Mullin.
CCSR makes the case in its report that marijuana is improperly placed in the same schedule as drugs like heroin and argues that the more appropriate options are to either remove the plant from the list of controlled substances altogether or reschedule it to Schedule III or below. The report outlines the scientific, economic, legal, and social justice considerations of these options compared to the status quo.
Marijuana is presently listed in Schedule I under the CSA, subjecting it to the greatest level of control reserved for substances deemed to have “no accepted medical use” and a “high potential for abuse.” As a result of its classification, marijuana continues to be harshly criminalized, Americans continue to be incarcerated for possession and use of cannabis, and state-licensed cannabis businesses operate under extreme regulatory burdens.
CCSR is clear in its report that descheduling is the ideal result, particularly for criminal justice reform, but makes a case that moving cannabis to a less restrictive schedule would still be significant incremental reform.
“Descheduling is the optimal outcome and the one that would mark the greatest improvement over the status quo possible without congressional intervention,” per the CCSR report. However, if the U.S. Food and Drug Administration (FDA) “determines that it cannot find its way to recommending marijuana descheduling, the Agency should instead recommend rescheduling to schedule III, IV, or V.”
The report comes amid the Biden administration’s review of the status of cannabis under the Controlled Substances Act (CSA), for which a decision is expected later this year. Currently, the FDA, under the U.S. Department of Health and Human Services (HHS), is conducting an eight-factor scientific review. HHS will submit findings and recommendations to the Drug Enforcement Administration (DEA) under the U.S. Department of Justice (DOJ). DEA has the final say but is bound to accept HHS’s recommendations on scientific and medical matters.
“FDA is not going to find that there’s zero abuse potential for cannabis,” Kline told Law360. “It’s just not a realistic expectation. And so I think we should all be prepared for schedule III, IV, or V.”
One immediate benefit of rescheduling to schedule III, IV, or V is that it would allow state-licensed cannabis businesses to take federal tax deductions. Section 280E of the Internal Revenue Code prevents businesses “trafficking” in schedule I and II substances from taking deductions for ordinary business expenses. Rescheduling would eliminate this financial burden, providing much needed relief for regulated cannabis businesses.
Rescheduling would also “reduce the scope of criminal liability for cannabis-related activity” and “support an industry generating billions of dollars for the American economy and creating hundreds of thousands of American jobs,” according to the report.
There have been five articles on the release of this report so far: Marijuana Moment, Law360, Green Market Report, Benzinga and GreenState.
Cannabis: In Focus
U.S. Department of Health and Human Services (HHS) Secretary Xavier Becerra shared during a press conference on June 15 that relevant federal agencies are working to complete their administrative review of cannabis scheduling this year, according to Marijuana Moment.
Last October, President Biden took the historic step of directing his administration to “expeditiously” review the status of cannabis under the Controlled Substances Act. Until now, the timeline for this review had been unclear. The next step after HHS completes its review and makes a scheduling recommendation is for the Drug Enforcement Administration (DEA) to chime in. Becerra told reporters that HHS is working with other agencies, like DEA, to “give the president an answer that’s based on the science and the evidence. Stay tuned. We hope to be able to get there pretty soon—hopefully this year.”
The outcome of this review could have wide-ranging impacts on the cannabis industry. Rescheduling cannabis to Schedule III, IV, or V would mark historic progress toward ending federal prohibition and present a many over the status quo. Descheduling, while unlikely to happen through this process, would demonstrate cannabis’ low potential for abuse and mark a dramatic step toward achieving President Biden’s criminal justice and racial equity goals.
Perkins Coie LLP is working with the Coalition for Cannabis Scheduling Reform, a diverse group comprising cannabis companies, scientists, and legal authorities that aims to provide critical information and analysis concerning the urgent need for cannabis scheduling reform.
On June 8, 2023, Gov. Kathy Hochul (D) announced a crackdown on sales by unlicensed cannabis sellers, which could face fines of up to $20,000 a day under recent legislation allowing for enhanced enforcement. The legislation allows the Office of Cannabis Management to assess civil penalties against unlicensed cannabis businesses and makes it a crime to sell cannabis and cannabis products without a license. Under the new law, businesses that fail to pay cannabis taxes can also face both civil and criminal penalties for tax fraud.
Illegal cannabis storefronts and trucks that sell untested, unregulated cannabis products are a significant public safety issue, but consumers do not always realize these businesses are unlicensed, given their proliferation amidst the slow ramp-up of the legal, regulated adult-use market. As we have written about previously, the state of New York has attempted to curb these illegal sales by sending warning notices to landlords and establishing QR code verification for licensed businesses.
The latest effort to cease the sale of unregulated cannabis includes an interagency collaboration between the New York State Office of Cannabis Management and the Department of Taxation and Finance, who worked together to conduct inspections at unlicensed cannabis operations in New York City, issuing violation notices and orders to cease unlicensed activity. Additionally, authorities are now allowed to padlock noncompliant buildings. These efforts are expected to be replicated across the state.
Unlicensed sellers are not subject to strict public safety requirements (such as ID verification to confirm that consumers are 21 or older); they similarly avoid paying taxes that not only cover regulatory costs but also are reinvested into communities disproportionately targeted by drug enforcement. Licensed operators in New York must go through a competitive and expensive application and approval process before being authorized to sell lab-tested cannabis products, which must meet certain safety and labeling standards. This enforcement push is calculated to protect both public health and the viability of the regulated marketplace.
Note: Perkins Coie LLP only represents licensed cannabis businesses or those seeking licensure through lawful processes.
