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DEA likely to OK marijuana rescheduling, but election and lawsuits could get in the way

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From zealous drug warrior to out-of-touch elder statesman to the regulated marijuana industry’s savior apparent.

President Joe Biden’s long arc in public life might have more twists ahead.

One year after setting into motion the most significant transformation in federal marijuana policy since 1970, the same politician whose views as a U.S. senator escalated the drug war to its apex has now, as president, laid the cornerstone for a stable and lasting legal marijuana industry.

“Love him or hate him,” said Andrew Kline, Denver-based senior counsel at national law firm Perkins Coie, “this industry should show him some appreciation.”

How it started

Drug reformers had low hopes for a Biden White House.

A law-and-order hard-liner as a senator, Biden was routinely ridiculed on the 2020 campaign trail for refusing to adapt to changing attitudes about drug use.

But his October 2022 declaration that a half-century of federal marijuana prohibition was a “failed approach” is the most pro-reform statement from a sitting president.

Biden’s accompanying executive order for federal health regulators to “expeditiously” reevaluate the way the country regulates marijuana culminated with an Aug. 29 recommendation from the U.S. Department of Health and Human Services (HSS) that the drug be reclassified as a Schedule 3 controlled substance.

The recommendation is the federal government’s first admission that marijuana has medicinal value.

Legal experts say the U.S. Drug Enforcement Administration has no choice but to codify the recommendation, which would immediately relieve cannabis operators from Section 280E of the IRS code.

Section 280E prohibits plant-touching businesses from taking normal business deductions on federal tax returns.

Given that the recommendation appeared less than a year after the review process was launched, it is a clear indicator that the White House is taking drug-policy reform seriously.

A second Biden term, if it materializes, might trend toward interstate marijuana commerce and federal legalization, observers say.

How it’s going

As of mid-October, the DEA was evaluating that recommendation, the final step before the agency issues a proposed change to federal law.

But even that hurdle now seems like a formality.

The DEA has yet to contradict health regulators’ recommendations on matters of science and health – and might lack the authority to do so – according to an analysis by the Congressional Research Service think tank.

That means the DEA is likely to sign off on the HHS’ recommendation and issue a proposed rule change, possibly as early as the end of the year, predicted Howard Sklamberg, a former top enforcement official at the Food and Drug Administration who is now a partner at Washington DC-based law firm Arnold & Porter.

“I don’t think that will take terribly long,” said Sklamberg, who also correctly predicted that the HHS recommendation would come more quickly than many anticipated.

“They’re wanting to get this done,” he added. “They’ll want to have the final rule done certainly by 2024 – and probably not too late in 2024, given the political cycle.”

That might mean Biden – chief sponsor and lead agitator for the notorious 1994 crime bill that filled the nation’s prisons with nonviolent drug offenders – could run for reelection with “doing more than any other president to legalize marijuana” on his resume, which could be a key factor in cannabis-friendly swing states such as Florida, Ohio and Pennsylvania.

“Biden was not a friend of cannabis,” said Aaron Miles, chief investment officer of Chicago-based marijuana multistate operator Verano Holdings Corp.

“At one point recently, he was calling this a ‘gateway drug.’ For this administration to embrace this as medicine is just massive. Massive.”

What’s next

While drugs have been rescheduled and even descheduled in the past – the most relevant example being Epidiolex, the hemp-derived, CBD-rich epilepsy treatment that the DEA classified as a Schedule 5 drug in 2018 before removing it from the Controlled Substances Act (CSA) entirely in 2020 – experts agree there is little precedent for rescheduling marijuana that would give a clear picture of what’s to follow.

“It’s totally fair to say it’s unprecedented,” said Jonathan Caulkins, a drug-policy researcher and professor at Carnegie Mellon University in Pittsburgh.

“This is a botanical, No. 1,” said Kline of Perkins Coie. “And, No. 2, there has never been a nationwide marketplace for a drug that hasn’t been approved by the FDA like this.”

Still, there’s a generally agreed-upon process that the rescheduling recommendation will follow from here, policy experts said.

After the DEA weighs how rescheduling might affect matters of law and policy – including U.S. obligations under international drug-control treaties – the agency triggers the federal rulemaking process laid out in the Administrative Procedures Act.

The DEA publishes a proposed rule, then opens a window for public comment – possibly 30 to 60 days. Those comments will be considered and, in some cases, answered, either directly or by a blanket statement addressing common concerns.

The rule might be issued as soon as the end of the year, meaning rescheduling could take effect next spring.

What the DEA cannot do is contradict the rescheduling recommendation.

“The DEA has to accept the medical and scientific evaluation,” Kline said. “That is statutory.”

Observers agree there will almost certainly be lawsuits, brought by both legalization foes seeking to keep marijuana strictly illegal and by legalization advocates seeking to deschedule the drug entirely.

Either or both scenarios could lead to a judge imposing an injunction and halting the rescheduling process before the legal complaint is resolved.

It also could lead to government appeals that would place rescheduling in the hands of the U.S. Supreme Court.

Given conservative Justice Clarence Thomas’ recent statement that “a prohibition on … marijuana may no longer be necessary,” the nation’s highest court might be the venue for a final victory.

Either way, rescheduling means that federal tax reform – something the industry has clamored for – seems inevitable.

What still must happen

Yet, as critics and skeptics point out, rescheduling is not legalization.

Downgrading cannabis from Schedule 1 to Schedule 3 of the CSA, which permits doctors and DEA-licensed pharmacies to provide FDA-approved drugs such as anabolic steroids, ketamine and Tylenol with codeine, might raise more questions than answers for an industry that largely operates independently of physicians and mainstream pharmacies.

“It may be a halfway victory for the industry” if, suddenly, federal authorities insist that doctors must prescribe marijuana like other drugs, observed Joshua Horn of Philadelphia-headquartered law firm Fox Rothschild.

Another complication would be a new resident at the White House.

It’s possible that Biden – whose approval rating stood at 42% in August, according to research firm Gallup, and who is neck and neck with former President Donald Trump in most presidential polling – could lose his reelection bid.

As president, Trump was mostly hands-off, granting the cannabis industry no favors while generally leaving state-legal marijuana alone.

And though neither Trump nor his distant rivals for the Republican nomination have made marijuana a 2024 campaign issue, with reform now more closely associated with Democrats, whomever becomes president might choose to use their power to change course yet again.

“The one caution I give is, there is a world in which litigation pushes this past an election, and there is a world in which Biden doesn’t get reelected and the new president says, ‘Pull that back. I don’t want to do that,’” warned Andrew Freedman, a former Colorado cannabis czar who is a partner at DC law firm Forbes Tate and executive director of the Coalition for Cannabis Policy Education and Regulation, an organization of large marijuana multistate operators.

Rescheduling, rather than descheduling, has also led to some voices in the cannabis industry claiming that the process is a Trojan horse meant to gift marijuana to big pharmaceutical interests.

Experts interviewed by MJBizMagazine agreed that such talk is conspiracy-level misinformation that’s not grounded in facts or practical reality.

“It’s crazy town for a whole variety of reasons,” Perkins Coie’s Kline said. “What pharmaceutical company is going to spend billions on clinical trials or premarket review of a drug that’s already being used by millions of people? There’s no pharmaceutical company that invests like that.”

“The FDA does not have the bandwidth or the resources or the wherewithal or the expertise to regulate this product,” he added.

“They can’t even regulate CBD. So, what are they going to do? Stop inspecting meat so they can start cracking down on cannabis?”

Tellingly, these concerns – while sometimes loud – are squarely on the fringe.

Horn said his clients reacted to the rescheduling announcement “with a lot of optimism – and optimism that probably hasn’t existed in the space for quite some time.”

No matter what, observers believe the rescheduling recommendation Biden set into motion will increase pressure on lawmakers to act in Congress, where banking reform as well as legalization have been stuck in limbo.

And while long-gestating reforms are still necessary – such as the Secure and Fair Enforcement Regulation (SAFER) Banking Act, which would allow financial institutions to offer services to state-licensed cannabis businesses – they’re easier to achieve when marijuana is not a Schedule 1 drug.

“I think there’s a realization in the administration that Congress is never going to get this done,” Horn said.

“I think that’s part of what’s going on here, why the president was pushing it.”

Rescheduling would have “an important symbolic effect,” Sklamberg said.

“When the federal government is saying something is Schedule 1, it is with the authority of public health agencies saying this is in a category of the most dangerous controlled substances.

“Moving it down to Schedule 3 means that statement is no longer there,” he added.

“Were I an advocate in a state to liberalize cannabis laws, that would make it politically easier for me when talking to state legislators, when talking to sheriffs.

“The fact is, changing cannabis laws is incredibly complicated. It was never going to be done at the snap of a finger.

“There are steps. And this is a big one.”


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