The proposed rescheduling of cannabis from Schedule I to Schedule III under the Controlled Substances Act (CSA) marks a pivotal moment in the evolution of U.S. cannabis policy but may bring few practical changes to state-licensed markets. On May 20, the U.S. Department of Justice (DOJ) and the Drug Enforcement Administration (DEA) issued a Notice of Proposed Rulemaking[1] (NPRM) to initiate the change, launching a 60-day public comment period that concluded on July 22. The proposal has stirred significant interest and debate among stakeholders, including state regulators, advocacy groups, health experts, individuals, and licensed businesses, resulting in the posting of more than 43,000 comments.
This article will explore the diverse spectrum of public comments on the proposed rule, the evolving understanding of the implications of moving cannabis to Schedule III, and the procedural steps that may lie ahead in the rulemaking process.
Closing of the Comment Period
The 60-day public comment period for the proposed rescheduling rule officially closed on July 22. The DOJ received approximately 43,000 comments, about 17% of which (approximately 7,500 comments) were submitted in the final three days.[2] A wide array of stakeholders, including state regulators, advocacy and opposition groups, health experts, and patients, all voiced their perspectives on the proposal, reflecting the complex and multifaceted nature of cannabis policy in the U.S.
Among the pro-reform advocates, an analysis by the Drug Policy Alliance (DPA) shows that a majority of commentors believe that rescheduling cannabis to Schedule III would not go far enough in addressing the federal prohibition’s broader implications.[3] The DPA found that 69% of commentors supported the complete descheduling of cannabis from the CSA, as opposed to rescheduling to Schedule III. The DPA’s analysis also revealed that a substantial portion of the comments emphasized the need for federal marijuana reform to advance racial justice and social equity.
Public comments from state regulatory agencies also highlighted a need for clarity on how rescheduling would impact state-legal recreational cannabis markets. The NPRM specifically states that “[i]f marijuana is transferred into Schedule III, the manufacture, distribution, dispensing, and possession of marijuana would remain subject to the applicable criminal prohibitions of the CSA.” This statement has led to uncertainty about the practical implications of rescheduling for existing state markets.
For instance, in addition to comments submitted by the Cannabis Regulators Association in July,[4] the Michigan Cannabis Regulatory Agency (CRA) submitted comments providing information on the state’s medical program in support of the finding that cannabis does have a currently accepted medical use in treatment in the U.S., and stressed the importance of federal guidance on the implications of rescheduling in several key areas, including the applicable general requirements for Schedule III substances, banking and taxation, bankruptcy protections, product packaging, labeling, advertising, and safety standards, transportation and interstate commerce, research, and federal enforcement priorities and regulatory agencies. The CRA’s executive director stated that “the CRA wanted to make it very clear in our public comment that rescheduling will do little good if the federal government fails to provide clear and robust whole-of-government guidance on the implications of the rescheduling.”[5]
Implications of Moving Cannabis to Schedule III
While the move to Schedule III is seen by many as a positive step toward recognizing the medical benefits of cannabis, it is important to understand that rescheduling alone would bring about only limited changes to the current legal and regulatory landscape. One of the most immediate and tangible benefits of rescheduling is the potential tax relief for businesses. Under the current Schedule I classification, the industry is subject to 26 U.S.C. § 280E, which prohibits cannabis businesses from claiming tax deductions for ordinary business expenses such as salaries, rent, and utilities. This prohibition results in a significantly higher effective tax rate when compared to businesses in other industries. Moving cannabis to Schedule III would remove this prohibition, allowing cannabis businesses to deduct these normal business expenses. This change should not be overlooked, as it could provide substantial financial relief to the industry, improving profitability and encouraging further investment and growth.
Beyond the potential tax benefits, the rescheduling of cannabis to Schedule III would bring about few changes in the broader legal framework governing cannabis.[6] As yet another example of this point, a recent report by the Congressional Research Service (CRS) highlights that many of the significant legal conflicts between federal and state cannabis laws would remain unresolved under Schedule III. The report states that cannabis activities not conducted under a valid prescription would continue to be subject to federal criminal penalties.[7] This means that the cultivation, distribution, and possession of cannabis for recreational use would continue to violate federal law, maintaining the status quo for state-legal recreational markets.
One notable change identified in the CRS report pertains to advertising. Under the current Schedule I classification, traditional advertising for cannabis and cannabis products is prohibited under 21 U.S.C. § 843(C). If cannabis is rescheduled to Schedule III, this restriction would no longer apply, potentially allowing cannabis businesses to engage in marketing and advertising activities that have historically been restricted. This could lead to an increase in visibility and consumer awareness of cannabis products.
The limitations of rescheduling highlight the need for comprehensive federal legislation to address the broader issues facing the cannabis industry.
Next Steps in the Rescheduling Process
With the close of the public comment period, the rescheduling process moves into a critical phase. The DEA is now tasked with reviewing the public comments and finalizing the rescheduling rule. The DEA will analyze the feedback received during the comment period and may incorporate changes based on new data or arguments presented by stakeholders. The role of the DEA administrator is crucial at this stage, as they will ultimately sign off on the final rule, as well as any administrative hearings on the rule. Opponents have called for,[8] and the DEA may choose to hold, such administrative hearings to gather additional input before the rule is finalized.
The public comments on the proposed rule will likely play a significant role in shaping the final rule. The federal Administrative Procedure Act requires that the DEA consider all relevant material presented during the comment period and “base its reasoning and conclusions on the rulemaking record, consisting of the comments, scientific data, expert opinions, and facts accumulated during the pre-rule and proposed rule stages.”[9] The DEA will need to address significant issues raised in the comments and provide a reasoned explanation for its decisions. This process ensures that the final rule is grounded in a thorough consideration of public input and scientific evidence.
Once the DEA completes its review, the final rule will be published in the Federal Register. Typically, a final rule becomes effective 30 days after publication. However, for “significant” and “major” rules, this period may extend to 60 days to allow for further review and compliance planning.[10] The rule’s effective date may be subject to delays if legal challenges arise or if the DEA decides to reopen the comment period based on new information.
Opponents of cannabis rescheduling are likely to challenge the final rule in court. These challenges may argue that the rescheduling decision was arbitrary, capricious, or not supported by substantial evidence. The court will evaluate whether the DEA adhered to procedural requirements, considered all relevant factors, and provided a rational basis for its decision. If a court finds that the DEA failed to meet these standards, it may vacate the rule and remand it back to DEA for further consideration. Legal battles could delay the implementation of the final rule and result in further uncertainty for the cannabis industry.
Why It Matters
The proposed rescheduling of cannabis from Schedule I to Schedule III under the CSA represents a significant yet limited step forward in the evolution of federal cannabis policy. The public comment period on the proposed rule brought forth a diverse array of perspectives, with the majority advocating for more comprehensive reforms beyond rescheduling. While tax relief for cannabis businesses is a notable benefit, many of the broader legal and regulatory conflicts between federal and state laws would remain unresolved under Schedule III. The most recent CRS report on rescheduling underscores this point. As the DOJ and DEA proceed with the administrative process, including potential hearings and the finalization of the rule, stakeholders must stay informed and actively engaged. Stay tuned to Troutman Pepper’s Cannabis Communications Newsletter for the latest on the rescheduling process.
[1] Schedules of Controlled Substances Rescheduling of Marijuana Proposed Rule, available at https://www.regulations.gov/document/DEA-2024-0059-0001/.
[2] See Lange, 43,000 Comments Filed on Cannabis Rescheduling Proposal as Public Period Closes, Cannabis Business Times (July 23, 2024), available at https://www.cannabisbusinesstimes.com/news/federal-marijuana-schedule-dea-doj-comments-when-hearings-proposed-rescheduling-cannabis-rul/.
[3] Nearly 70% of Public Comments on Rescheduling Proposal Support Federal Marijuana Decriminalization, New Analysis Shows, Drug Policy Alliance (July 23, 2024), available at https://drugpolicy.org/news/nearly-70-of-public-comments-on-rescheduling-proposal-support-federal-marijuana-decriminalization-new-analysis-shows/.
[4] Rodriguez et al., The Impact of Cannabis Rescheduling on State Laws and Regulations: Insights From CANNRA, Troutman Pepper (July 24, 2024), available at https://www.regulatoryoversight.com/2024/07/the-impact-of-cannabis-rescheduling-on-state-laws-and-regulations-insights-from-cannra/.
[5] See Michigan’s Cannabis Regulatory Agency Comments on the Proposed Federal Rule Rescheduling Marijuana, Michigan Department of Licensing and Regulatory Affairs (July 22, 2024), available at https://www.michigan.gov/lara/news-releases/2024/07/22/cra-comments-on-the-proposed-federal-rule-rescheduling-marijuana.
[6] See generally Smith-Gonnell et al., Rescheduling and recreational marijuana: Possible step toward national legalization?, Reuters (July 2, 2024), available at https://www.reuters.com/legal/litigation/rescheduling-recreational-marijuana-possible-step-toward-national-legalization-2024-07-02/.
[7] Rescheduling Marijuana: Implications for Criminal and Collateral Consequences, Congressional Research Service (July 23, 2024), available at https://crsreports.congress.gov/product/pdf/IF/IF12715.
[8] See e.g., Request for Hearing Period on the Proposed Rule Rescheduling Marijuana, Docket No. DEA-1362 (Comment ID DEA-2024-0059-23173), Comment on FR Doc # 2024-11137, Drug Enforcement Administration (June 19, 2024), available at https://www.regulations.gov/comment/DEA-2024-0059-23173.
[9] See A Guide to the Rulemaking Process at 6, Office of the Federal Register, available at https://www.federalregister.gov/uploads/2011/01/the_rulemaking_process.pdf.
[10] Id. at 8.
