Whether you believe that cannabis legalization has occurred too quickly or too slowly, one thing is certain: recent developments herald a potentially seismic shift in federal cannabis policy in the U.S. Reflecting on our article from September, which discussed the U.S. Department of Health and Human Services’ (HHS) recommendation to the Drug Enforcement Administration (DEA) to reschedule cannabis from Schedule I to Schedule III of the Controlled Substances Act (CSA), it is clear that the landscape continues to evolve rapidly. Since that publication, numerous noteworthy developments have unfolded, along with a growing discourse on the potential unintended consequences of such a reclassification. This article aims to catch readers up on the latest developments in federal cannabis legalization.

Background Information

In response to President Biden’s call for the “expeditious” review of the status of cannabis as a Schedule I substance, in August 2023 HHS sent a recommendation letter to DEA, which reportedly recommended rescheduling cannabis from Schedule I to Schedule III of the CSA. Importantly, at the time, the letter itself had not yet been made available to the public. Soon thereafter, HHS released a redacted version of the letter, but again the recommendation was unconfirmed. A lawsuit was filed against HHS in September in an attempt to make the letter public.

On January 12, HHS released the full, unredacted version of the letter along with the basis for its recommendation, which confirmed that HHS had concluded that cannabis should be a Schedule III drug under the CSA. Through this letter, for the first time, the federal government has acknowledged the medical utility of cannabis. This historic stance suggests a coming departure from longstanding prohibitions and a step toward integrating cannabis into the medical mainstream. While HHS’ recommendation is binding on DEA as to the scientific findings, the final rescheduling decision rests with DEA, who is tasked with balancing those findings against international treaty obligations and other public health and safety considerations.

On the same day that HHS released their unredacted recommendation letter, the attorneys general (AGs) of 12 states, led by Colorado AG Phil Weiser, sent a letter to the head of the DEA expressing their support for moving cannabis to Schedule III. The letter, sent by a coalition of AGs from California, Colorado, Connecticut, Delaware, Illinois, Maryland, Massachusetts, Nevada, New Jersey, Pennsylvania, Oregon, and Rhode Island, emphasized that while not all states agree on outright legalization of cannabis, the signatory states did agree “that a state-regulated cannabis industry better protects consumers than the illicit marijuana market or the unregulated intoxicating hemp-derived marketplace.”

The AGs stated that a move to Schedule III would allow the states to continue to set standards for the effective regulation of cannabis while better protecting consumers, especially youth, from the illicit and hemp-derived intoxicant markets. The AGs also pointed out that a move to Schedule III would ease restrictions on access to cannabis for researchers and alleviate the financial burden born by the industry under U.S.C. Section 280E, leading to a more informed and equitable industry.

Why It Matters

Considering the support shown for rescheduling at both the federal and state levels in recent weeks, it seems likely that we will see a decision from DEA moving cannabis to Schedule III, which could come as quickly as late 2024. However, FDA approval of new drugs typically takes years of clinical testing and billions of dollars in research and development costs, therefore some time will pass before cannabis products are approved by FDA for distribution as prescription medical products. In addition, FDA does not typically approve botanical drug products as prescription medications (to date, only two botanical drug products have been approved for marketing as prescription drugs), and it is unlikely that traditional forms of cannabis consumption like smokable joints and edibles would be approved. Instead, prescription cannabis products would likely be limited to more traditional forms like pills and ointments. The speculative nature of the FDA approval process risks potentially excluding these traditional consumption methods favored by a majority of cannabis consumers.

A recent consumer survey conducted by Nugg MD, a medical cannabis technology company, reveals consumer apprehension toward a market constrained by prescription-only access. While 55% of consumers said that they would purchase cannabis from a pharmacy with a prescription if that was the only legal means of obtaining it, nearly 1/3 of the respondents said that they would return to the illicit market, and therefore risk criminalization and harm from unregulated products, rather than receiving a federally approved prescription. Nugg MD argues that this shows that consumers will suffer under federal rescheduling unless legislation is enacted to protect existing state markets. This sentiment is echoed in concerns over a pharmaceutical takeover of the cannabis industry, demonstrating that the path to rescheduling is fraught with complexities that extend beyond legal frameworks to touch on consumer autonomy and industry structure.

Rescheduling cannabis to Schedule III, while easing research restrictions and alleviating tax burdens, introduces new legal quandaries to existing state markets. As noted in a recent Congressional Research Service report, such a move on its own would not harmonize state-legal cannabis activities with federal law. In addition to the requirements related to FDA approval of prescription drugs, existing medical cannabis businesses would become subject to a vast array of new regulatory requirements, including the requirement to register to manufacture, distribute, and /or dispense a Schedule III controlled substance with the DEA. The report also notes that a move to Schedule III would not affect the legal standing of state recreational markets in the slightest, as consumption of cannabis without a prescription would remain federally illegal. The report concludes by suggesting that a legislative path to rescheduling, rather than an administrative one, could more holistically address the numerous conflicts between federal and state cannabis laws.

The journey toward federal rescheduling is emblematic of the broader societal and legal reevaluation of cannabis that has been underway for several decades now. While the potential shift to Schedule III promises research opportunities and tax relief, it also poses significant challenges to existing market dynamics, consumer preferences, and federal-state legal coherence. As policymakers, legal experts, and industry stakeholders navigate these challenges, the ultimate outcomes will likely depend on a delicate balance of federal oversight, state autonomy, and respect for consumer choice. The dialogue surrounding cannabis’s legal status is far from concluded; it is merely entering a new, more complex phase that will require thoughtful consideration of the myriad interests at play. As we move forward, the interplay between federal directives, state responses, and consumer behavior will undoubtedly shape the future of cannabis in America.

Our Cannabis Practice provides advice on issues related to applicable federal and state law. Marijuana remains an illegal controlled substance under federal law.