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What Are the Implications?

In a surprise move, Biden Administration insiders have signaled that a few executive branch agencies will be moving in unison to reschedule marijuana from what’s called a “Schedule I” drug to a Schedule III drug under the Controlled Substances Act.

What is the Controlled Substances Act?

The Controlled Substances Act is the main federal law that regulates many aspects of controlled substances. Drugs or substances are examined for their medical (beneficial) use, potential for abuse, safety and the likelihood that people would become dependent on the substance.

Congress enacted the CSA way back in 1970 so drugs with a potential for abuse could be available for medical, scientific, and research purposes, while trying to prevent them from being diverted for illegal reasons like drug abuse and trafficking activities.

What is the DEA’s Role?

The CSA is mainly under the prevue of the Drug Enforcement Administration (DEA), not the Food and Drug Administration. The DEA is housed within the US Department of Justice…  which tells you their mission is really enforcement of laws regarding who can possess drugs rather than how drugs are licensed, prescribed, and filled.

The DEA uses the Controlled Substances Act language to classify drugs or substances with those characteristics into one of 5 categories – ranging from Schedule I (those with no medical use and potential for abuse and dependency) – to Schedule V. Schedule V drugs tend to have legit medical uses and a low risk of abuse and dependency.

DEA’s algorithm for classifying drugs is based on these criteria:

• Its actual or relative potential for abuse
• Scientific evidence of its pharmacological effect
• The state of current scientific knowledge
• Its history and current pattern of abuse
• The scope, duration, and significance of abuse
• What, if any, risk there is to the public health
• Its psychic or physiological dependence liability
• Whether it’s an immediate precursor of a controlled substance

Here are some examples of where drugs lie on the Schedule spectrum:

• Schedule I: Marijuana, ecstasy, heroin, LSD, and peyote
• Schedule II: Methamphetamine, cocaine, fentanyl, Vicodin, oxycodone, and Adderall.
• Schedule III: Anabolic steroids, testosterone, and ketamine, Tylenol with codeine.
• Schedule IV: Xanax, Ambien, Ativan, and Valium.
• Schedule V: Cough suppressants.

Alphabetical listing of Controlled Substances

A lower schedule number corresponds to greater restrictions, so substances in Schedule I are subject to the strictest controls, while substances in Schedule V are subject to the least strict. Schedule I drugs, where marijuana has been since 1970, aren’t authorized for anything.

That classification is a primary reason why marijuana was an enforcement priority for the DEA for many years. That has changed over time as more and more states adopted medical marijuana laws followed by laws that make it available for recreational purposes.

How Fast will Rescheduling Happen?

The rescheduling of marijuana from Schedule I to Schedule III won’t happen overnight. There is a defined process that needs to happen first. This week’s announcements were just the first steps in the rescheduling process.

The first step of the Office of Management and Budget to sign off on rescheduling marijuana to Schedule III. HHS has already recommended that marijuana be moved to a lower Schedule. After the public comment period (and a review by an administrative judge) DEA could publish the final rule.

After it’s rescheduled, marijuana would still be subject to various rules for Schedule III drugs and there could still be federal prosecution of people who traffic in the drugs without permission. Presumably, the feds will continue to mostly avoid prosecuting people for marijuana possession in states with medical or recreational marijuana laws (like Arizona).

However, it’s unlikely dispensaries operating in states like AZ would meet the federal Schedule III production, record-keeping, prescribing and other requirements… so those will be enforcement matters for DEA to still figure out.

Researching Marijuana will Become a Lot Easier

Marijuana’s status as a Schedule I drug has made it really hard to conduct authorized clinical studies that involve administering the drug. That’s created a bit of a conundrum: we’ve needed more research on Cannabis for a long time, but its Schedule I status was a huge barrier to actually doing it. Those barriers will be largely removed after rescheduling, making marijuana much easier to research for clinical/medical purposes.

Banking and Taxation Issues

Dispensaries haven’t been able to deduct rent, payroll or various other expenses that other businesses can write off because marijuana is Schedule I. Under the tax code, dispensaries are considered traffickers of an illegal substance because of its Schedule I status. Once Cannabis moves to Schedule III dispensaries will be treated like any other business.

Marijuana’s Schedule I status has been locking dispensaries out of banking services (especially loans). Rescheduling may not immediately (or directly) affect dispensaries’ ability to access banks because the federally regulated institutions are wary of the drug’s legal status, but that should change with rescheduling. Dispensaries have been trying to get the SAFE Banking Act to fix that. Some say passing the Act won’t be necessary if DEA actually reschedules.

Likewise, dispensary customers will likely begin to be able to use credit cards to buy product – but that remains to be seen as it’s the bank and credit card company’s decision.

Dispensaries operating in states like AZ currently don’t meet the federal Schedule III production, record-keeping, prescribing and other requirements so they’d presumably need to come into compliance with those requirements to enjoy the banking (and tax) benefits. Some in the industry worry that the IRS and banks would only consider medical marijuana dispensaries to be in compliance with new regulations – meaning retail dispensaries wouldn’t enjoy tax and banking benefits of rescheduling.

Why? Because Schedule III drugs require a prescription to be issued and filled by a ‘practitioner’. Recreational buyers don’t have a prescription nor are dispensary agents likely to be considered practitioners.

Will Big Pharma Get Involved & Compete with Dispensaries?

Once marijuana is rescheduled, pharmaceutical companies can start applying for licenses from the FDA for drugs/medications that use Cannabis. Once approved, those drugs could become available in local pharmacies.

Theoretically big pharma might see rescheduling as an opportunity to get a piece of the Cannabis action by applying for licenses to sell things like edibles for therapeutic purposes…  think gummies with a combo of CBD & THC as a sleep aid as an example. Like other drugs – they’ll need to prove to the FDA that they’re safe and effective to get them approved.

Honestly though, drug companies tend to like to get patents and drug approvals for medicines that are unique and have no biosimilar competitors because they can charge much higher prices. There are a host of competing drugs containing marijuana in states that have medical and retail programs – so I think it’s unlikely pharmaceutical companies will get involved, but I could be wrong. There’s no way FDA is going to approve marijuana buds etc. – so there won’t be any new competition on that front.