In May, the U.S. Department of Justice (DOJ) issued a notice of proposed rulemaking to transfer cannabis from Schedule I to Schedule III of the Controlled Substances Act (CSA), a change that could significantly affect current state cannabis programs. In response, the Cannabis Regulators Association (CANNRA) submitted a detailed comment letter to the DOJ requesting clarity on how rescheduling will impact these existing regulatory structures. An examination of CANNRA’s public comment offers insights for state-legal businesses into what the future may hold for the joint regulation of cannabis at the state and federal levels.
CANNRA is a nonpartisan association of state regulators that aims to support the regulatory authorities responsible for implementing and maintaining state-legal cannabis programs. By advocating for clear federal guidance, CANNRA helps state regulators implement effective cannabis policies. Importantly, CANNRA does not take a position on cannabis legalization or rescheduling. Instead, this association works to provide state regulators with the information and support they need to implement the laws enacted by their state legislatures.
CANNRA’s comment on the proposed rescheduling requested guidance from the DOJ on six important questions that state regulators have about the impacts of rescheduling on existing state programs:
1. Federal Enforcement Priorities
CANNRA’s comment emphasizes the need for clear guidance on the federal government’s enforcement priorities under the new schedule, and points out the lack of federal guidance for states regarding potential changes to the current federal-state dynamic. Specifically, there is no guidance on whether state-regulated cannabis products would remain federally illegal under Schedule III, creating uncertainty for regulatory agencies about how the DOJ will treat existing adult-use and medical programs. Clear federal priorities are crucial for states to understand the impact of rescheduling on their existing programs and market participants, including clinicians, patients, consumers, and state licensees. The last such guidance on federal priorities was issued by the DOJ in 2013, dubbed the Cole Memorandum, which was rescinded by the DOJ in 2018 under the Trump administration. Unfortunately, the likelihood of obtaining additional clarity from the DOJ is uncertain given both the Biden administration’s ambivalence toward cannabis policy reform and the possibility of a change to the Executive Branch following the upcoming 2024 presidential election.
2. Federal-State Collaboration
The status of cannabis as a Schedule I substance has resulted in states creating and maintaining isolated intrastate programs. These intrastate programs regulate areas where federal resources and expertise would typically be available, including the regulation of pesticides and additives, or the coordination of national recall procedures. CANNRA’s comment calls for coordinated federal-state collaboration to leverage federal resources and better protect public health and safety.
3. Interstate Coordination
Businesses are prohibited from sending cannabis or cannabis products into interstate commerce under Schedule I, which would not change through rescheduling alone. The prohibition also extends to sending certain laboratory testing materials to and from state laboratories. That restriction severely limits the effectiveness of various product testing procedures. CANNRA’s comment expressed a need for federal approval of the interstate exchange of cannabis-related materials for product safety and testing purposes, and for guidance on any allowance or prohibition of interstate commerce in cannabis products under Schedule III.
4. Research Processes and Protocols
Research procedures for studying Schedule I substances are stricter than any other schedule, and the supply of research cannabis is limited to only a few sources from which it can legally be obtained. Importantly, this means that researchers are prohibited from studying cannabis or cannabis products that are currently being sold in state markets, which can be substantially different and more potent than cannabis used for federal research purposes. CANNRA’s members requested guidance about whether researchers could study these state-legal products under Schedule III, and whether universities could conduct cannabis research without risking federal funding.
5. Regulation of Intoxicating Cannabinoids
The federal legalization of hemp in the 2018 Farm Bill has created inconsistencies in the regulation of intoxicating cannabinoids across the U.S. In many states, an intoxicating product can, if derived from a source with less than 0.3% delta-9 THC on a dry-weight basis, be legally sold to consumers with no regulatory oversight. Several states have taken steps to clarify the status of these products and have faced legal challenges. In March, the attorneys general of 20 states and the District of Columbia called on Congress to address the situation. CANNRA’s comment seeks clarity on how the states can assess and regulate the same molecules (in finished products) based on whether the initial cannabis plant utilized to manufacture the products constituted federally legal “hemp” or illicit “marijuana.”
6. Banking and Financial Policies
Cannabis businesses face significant challenges operating in a cash-only environment due to banking restrictions and large tax obligations under 26 U.S.C. § 280E. They are also prohibited from accessing traditional bankruptcy proceedings, making financial recovery even more difficult. Rescheduling could help the financial viability of these businesses by no longer subjecting the industry to § 280E, thereby significantly reducing tax obligations. Some states have enacted laws that allow deductions for cannabis businesses at the state level. CANNRA’s comments call upon the DOJ to clarify the associated financial and tax implications under Schedule III as well as the impact of rescheduling on bankruptcy proceedings.
Why It Matters
As a credible voice for state cannabis regulators, CANNRA’s comments grant a glimpse at the issues that are front of mind for the various regulatory bodies responsible for the regulation of state cannabis markets. By requesting clarity in these six specific areas with respect to rescheduling, CANNRA has, in our opinion, constructively set the stage for what the building blocks of a state-federal regulatory structure for cannabis in the U.S. might look like under Schedule III of the CSA.
