Cannabis Musings - August 11, 2023
Cannabis Musings - August 11, 2023
What's the deal with rescheduling? A very deep dive with a guest star.
Friends, I’m freilach that Shane Pennington, federal regulatory law and litigation Partner at Porter Wright in D.C., co-author of the very excellent On Drugs newsletter, and in my opinion the smartest lawyer out there on the Drug Enforcement Administration’s (DEA) administrative process, has agreed to shed some light for us on the federal administrative review of cannabis scheduling announced last October, a topic he’s written and spoken extensively about.
There’s a lot of information out there on the topic, including vague public statements by high-level officials about the timing, plenty of wishful opinions as to the outcome, and definitely a lot of underinformed takes by people who have no actual knowledge of the process (like me). It’s folly to confidently predict the outcome of this process - Az dos mazl geyt, kelbt zikh der oks. (“With luck, even your ox will calve.”) – but thankfully we have Shane to help improve our educated guesses.
(Of course, the tour de force below is not legal advice from Shane, Porter Wright LLP, me, Hauser Advisory, or anyone else. That doesn’t mean that it’s not incredibly informative, which it is.)
Be seeing you!
Q: Shane, what’s the process and timeline for Health and Human Services’ (HHS) report to the DEA? (As part of the review, HHS is providing a scientific and medical evaluation, as well as a scheduling recommendation, to the DEA.)
A: The process for HHS to develop and transmit its medical/scientific evaluation and scheduling recommendation to DEA is complex. The Secretary of HHS has delegated their duties in this regard to FDA, which has assigned primary responsibility for the initial drafting to FDA’s Controlled Substances Staff (CSS). When DEA requests HHS’s evaluation and recommendation, the request goes initially to the CSS. Once the CSS has drafted the evaluation and recommendation, it proceeds through a clearance process: first to the head of the FDA’s Center for Drug Evaluation and Research, then to the FDA Commissioner’s Office, and finally to the Office of the Assistant Secretary of Health. Once the Assistant Secretary signs off, the evaluation and recommendation are transmitted to DEA. The average time between DEA’s initial request and the Assistant Secretary transmitting the signed evaluation and recommendation to DEA is around 2.5 years. In this case, however, the President has requested that the Attorney General and HHS Secretary work as quickly as possible to reconsider cannabis’s scheduling status under federal law, and Secretary Becerra recently told reporters that he anticipated having HHS’s evaluation and recommendation to DEA by the end of this year (2023). If that timing holds, HHS will have completed its part of the job within approximately one year from the time of President Biden’s October 6, 2022, cannabis proclamation. Not bad in the scheme of things.
Q: Once the report is sent by HHS, what does DEA do with it?
A: Once DEA has HHS’s evaluation and recommendation, it then develops its own evaluation. In developing these scheduling evaluations, both HHS and DEA consider eight statutory factors. The difference is that the statute requires HHS to consider certain factors in particular and the rest only to the extent they bear on scientific and medical considerations. DEA, by contrast, is to consider all the factors, but is required to defer to HHS’s findings with respect to scientific and medical issues. HHS’s actual scheduling recommendation itself also exerts tremendous influence over DEA. The statute directs DEA not to “control” a substance if HHS recommends “no control.” And historically, DEA has never overridden an HHS scheduling recommendation. Put all that together, and the bottom line is this: While it’s true that DEA has final say over the scheduling of substances under the Controlled Substances Act, HHS often has a controlling influence over what that final say actually is.
Returning to DEA’s process, once DEA has developed its own analysis of the eight factors, it assesses its own evaluation, HHS’s evaluation and recommendation, and all other relevant evidence to determine whether “substantial evidence” supports initiating formal rulemaking proceedings to schedule/reschedule/deschedule the substance. If DEA concludes that substantial evidence for a change in the substance’s scheduling status exists, it drafts a proposed rule and publishes it in the Federal Register for everyone to see. The proposed rule explains HHS’s views, DEA’s views, and what DEA proposes to do with the substance. It also invites interested persons to comment and gives them 60 days to do so.
Finally, it notifies “interested parties” of their right to request an on-the-record hearing before a federal Administrative Law Judge (ALJ). If a hearing request is granted, the interested party may use the hearing to put on additional evidence and/or object to the proposed rule. The ALJ then considers the evidence, which can include testimony, cross-examination, and trial-like procedures, before developing findings of fact and conclusions of law to address the issues raised. DEA then considers all substantive comments it receives during the comment period as well as the evidence gathered during any ALJ hearings, and the ALJ’s findings of fact and conclusions of law before developing a final rule that ultimately decides whether to change the substance’s scheduling status under federal law.
As if all this weren’t complicated enough, there is another layer to the process that comes into play in the cannabis context: Treaties. Because cannabis is also subject to control under the Single Convention on Narcotic Drugs of 1961, an international drug control treaty that the U.S. acceded to in 1967, , DEA is required by the Controlled Substances Act (CSA) to place cannabis in the schedule that DEA “deems most appropriate” to ensure U.S. compliance with treaty obligations regardless of the detailed process and findings described above. I co-authored a law review article explaining why this arrangement is unconstitutional, but until a federal court agrees with us, DEA is unlikely to ignore the statutory mandate. Historically, DEA has said two important things about scheduling and treaty compliance. First, the only two CSA schedules that, on their own, ensure treaty compliance are schedules I and II. Second, the agency can move a substance to schedules III-V and still ensure treaty compliance by imposing additional requirements by regulation to meet the additional treaty obligations that aren’t already addressed by the requirements associated with that schedule.
One final note about the treaty. The U.S.’s marijuana policy has been violating the Single Convention since the day DEA became an agency in 1973, and we continue to violate the treaty todayI. You can read about the early violations that lasted until 2020 in a Department of Justice (DOJ) opinion that a lawsuit that I and others forced DOJ to make public. The International Narcotics Control Board has separately (and repeatedly) warned the US that its failure to prevent the states from legalizing adult-use cannabis also puts the US out of compliance with the Single Convention. The important thing for our purposes about all this is to understand that the ongoing administrative process to reconsider cannabis’s federal scheduling status cannot fix US noncompliance with the Single Convention. Why? Because regardless of the outcome of this process, the state adult-use cannabis regimes will remain in place. DEA is a powerful agency, but it doesn’t have enough power to force the states to repeal their laws permitting adult use.
Given that we’re going to be violating the treaties no matter what, you might think DEA will make them a low priority in the ongoing administrative process. Yet, the agency can’t ignore a statutory command just because it doesn’t think it matters, and even if it could, it would have to tread very carefully in doing so. That is because DEA isn’t the only agency that cares about US compliance with the Single Convention. The State Department does, too. Regardless of what happens with cannabis, the State Department will care about how the US handles the treaty issue because State will be dealing with touchy diplomatic issues arising from the fentanyl crisis for years, which means attempting to convince China and Mexico to assist the US in shutting down the influx of deadly fentanyl analogs into the US. The State Department will want to raise treaty obligations in those diplomatic negotiations, and China and Russia will surely use the US’s longstanding noncompliance in the cannabis context to resist those efforts. All this to say that the treaty issue is going to be front and center as this process develops. I’ve been talking to stakeholders and the media about it constantly, but nobody seems to take the topic seriously. It’s boring, and no one seems to think a treaty they’ve never heard of could possibly get in the way of a result that most Americans and the President himself supports. While I understand that sentiment, I can assure you that, regrettably, it’s dead wrong.
Q: Let's assume HHS’s report is favorable (from a re/deschedule perspective). Could DEA ignore that?
A: In the entire history of the CSA, DEA has never overridden HHS’s scheduling recommendation. The closest it has come is to politely ask HHS to reconsider. DEA could conceivably cite treaty obligations (discussed above) to argue that it cannot comply with HHS’s recommendation because its hands are tied: The statute requires it to keep cannabis in schedule I because doing so is “most appropriate” to ensure treaty compliance. That would be a bold step, though, because DEA has recognized flexibility to compromise even in the treaty context in the past, and courts tend to view unexplained agency deviations from past practice with great skepticism. I can say with some confidence that were DEA to invoke the treaty issue to derail (or water down) cannabis rescheduling in the face of an HHS recommendation, a lawsuit would almost certainly follow (a reality that I cannot imagine will be lost on DEA).
Q: So, if we see cannabis move from Schedule I to Schedule III, what does that mean?
A: First, it would mean that “trafficking” in cannabis would no longer be subject to Section 280E of the Tax Code, because that provision applies only to trafficking in schedule I and II substances. Second, it would relax certain DEA licensing requirements applicable to those seeking to handle cannabis in compliance with federal law. Ordinarily, moving a substance from schedule I to schedule III would mean relaxing the research restrictions applicable to that substance. Ironically (and tragically in my view), that is not so in the cannabis context because the Medical Marijuana and Cannabidiol Research Expansion Act, which President Biden signed into law late last year, tightened research restrictions on cannabis and tied those tighter restrictions to cannabis itself, regardless of where cannabis is listed on the CSA’s schedules. I’ve written extensively about this, most recently here.
Rescheduling to schedule III would also likely reduce criminal penalties associated with cannabis-related activity because prosecutors and judges would likely treat cannabis-related offenses less harshly as they exercised discretion over whom to prosecute and how to sentence. Importantly, rescheduling to schedule III would not open interstate commerce at all. It would remain illegal under the federal Food, Drug, and Cosmetic Act (FDCA) to market medical cannabis as a drug in interstate commerce, for example. It would mean that intrastate medical marijuana use would likely be more openly accepted among practitioners and law enforcement. On the other hand, it is possible that prohibitionist states would tighten their own anti-cannabis laws in response to such a shift at the federal level.
Q: Is there a chance that the DEA distinguishes between medical and adult-use cannabis?
A: It’s possible but very unlikely. The agency might discuss the two “types” of cannabis in its analysis, but I strongly doubt it will schedule them differently. DEA often does place the “street” and “pharmaceutical” version of a particular controlled substance in different schedules. This is called “bifurcated scheduling.” But that practice is premised on the fact that ordinarily, a medical version of a drug is rescheduled only once FDA has approved it for interstate marketing. Here, we’re contemplating DEA rescheduling cannabis without FDA approval. There is therefore no basis for bifurcated scheduling in the cannabis context. I suppose DEA could attempt to do it anyway, but that would require a lot of work and creative thinking along scientific/medical lines—not something DEA is exactly known for. Even FDA has told Congress it can’t regulate CBD without a new regulatory pathway. If FDA is hesitant to jump into the mix, I strongly doubt DEA is going to be eager to take the plunge.
Q: Do you think that the DEA would require specific DEA licensing to prescribe and dispense Schedule III cannabis? If so, how would that even work? What would it mean for a company selling cannabis without that license?
A: I doubt DEA would do much of anything that it isn’t doing now. Right now, DEA isn’t requiring doctors who recommend medical cannabis to register. I don’t see why a relaxation of federal restrictions should cause a ratcheting up in federal requirements in this (or any other) area.
Q: Is descheduling, which is I think really unlikely politically, even feasible without a cross-agency regulatory framework in place (which I would assume would require Congress)?
A: Sure. Descheduling wouldn’t change a thing about cannabis’s status under other federal laws like the FDCA (but see the 280E comments above). It would merely mean that DEA would no longer have jurisdiction over cannabis under the CSA. It’s possible that FDA would then treat cannabis as a higher priority simply because with DEA out of the mix, FDA would presumably be the lead federal agency with jurisdiction over cannabis. While that’s theoretically possible, it seems practically impossible that FDA would have the resources—not to mention the will—to try to enforce the FDCA against cannabis operators nationwide. Remember, this isn’t a legislative process where Congress can dole out massive appropriations to fund enforcement. This is an administrative process. No federal agency will be getting any taxpayer dollars on the backend to fund any sudden uptick in federal enforcement. Enforcement ain’t cheap, and the feds have not prioritized cannabis enforcement even with cannabis in the most strictly criminalized schedule possible under federal law. Loosening federal restrictions under the CSA—or removing them entirely—strikes me as a very odd way to signal that a federal crackdown is coming.
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© 2023 Marc Hauser and Hauser Advisory. None of the foregoing is legal, investment, or any other sort of advice, and it may not be relied upon in any manner, shape, or form.