Hearings on the merits of the Drug Enforcement Agency’s (DEA) proposed cannabis rescheduling, initially set to begin this month, have been cancelled. The preliminary hearing period has been littered with accusations that the DEA improperly excluded certain parties from participating, that the DEA itself does not adequately support rescheduling, and that the DEA engaged in improper ex parte communications with anti-rescheduling parties.

Now, the proceedings have stalled because the administrative law judge (ALJ) granted a request to appeal his decision refusing to remove the DEA as the proponent of the proposed rule to the DEA Administrator.

Background on Proposed Rule and Comment Period

As we previously discussed here and here, the DEA issued a Notice of Proposed Rulemaking (NPRM) on May 16, 2024, which proposed to reclassify cannabis from a Schedule I to a Schedule III substance under the Controlled Substances Act (CSA). Although the DEA’s proposal would not federally legalize marijuana, it would entail certain important benefits for the industry—such as allowing businesses to claim federal tax deductions and credits currently prohibited under 26 U.S.C. § 280E.

Following the publication of the NPRM in the Federal Register, a 60-day comment period began. The DEA received roughly 43,000 comments from industry stakeholders, state regulators, advocacy groups, health experts, and individuals. A Drug Policy Alliance analysis found that 69% of commenters supported the complete descheduling of cannabis from the CSA, rather than the DEA’s proposed rescheduling to Schedule III. For further discussion of the comments submitted to the DEA on the proposal, see our team’s earlier coverage here.

Hearing Requested on Proposed Rule

After a hearing was requested on the NPRM, the DEA initially announced in late August 2024 that it scheduled a hearing before an ALJ for December 2, 2024. On October 29, 2024, the DEA submitted to Chief ALJ, John Mulrooney, a list of 25 “designated participants” (DPs)—commenters that the agency selected to participate in the hearing on the NPRM.

In an October 31, 2024 order, however, the ALJ found that the DEA failed to submit material to show that the DPs were “interested persons,” as required by regulations governing rescheduling hearings. See 21 C.F.R. §§ 1300.01(b), 1308.44(a)-(b). Per the ALJ’s order, any DP wishing to participate in the rescheduling hearings was instructed to provide information demonstrating that they are an “interested person” by November 12, 2024. In other words, the DPs were required to demonstrate to the ALJ that they would be “adversely affected or aggrieved” by the proposed scheduling rulemaking. The order also clarified that the preliminary hearing on December 2, 2024 would be for scheduling purposes only, with hearings on the merits to be set by a subsequent order following the preliminary hearing.

Initial Attempt to Disqualify DEA as Proponent

Some parties in favor of rescheduling have sought to disqualify the DEA as the proponent of the proposed rule, instead suggesting that a private party serve as the proponent of the proposed rule. These parties allege that DEA does not adequately support rescheduling and therefore should not serve as the proponent of the proposed rule. On November 18, 2024, Hemp for Victory and Village Farms International filed a joint motion asking the ALJ to remove the DEA from the rescheduling process, arguing that the DEA engaged in ex parte communications with anti-rescheduling parties regarding the merits of the proposed rule. The ALJ noted in a November 20, 2024 order that the “aspect of the Motion’s request that one of the Movants supplant the Agency as the proponent of the NPRM may arguably be vulnerable to the characterization of being unserious.”

The ALJ denied the joint motion to remove the DEA as proponent in a November 27, 2024 order. Although the ALJ acknowledged that “the allegations . . . are distasteful and arguably unhelpful to the public’s perception that the proceedings will be transparent,” an ALJ is “without authority to grant the . . . removal relief sought.”

Relatedly, Matthew Zorn, an attorney representing pro-rescheduling parties involved in the hearings, filed a Freedom of Information Act (FOIA) request with the DEA. Zorn seeks emails from the agency that could show whether the DEA Administrator is resistant to rescheduling. Zorn also concurrently filed a complaint in the U.S. District Court of the District of Columbia. Given the potential waiting time on a traditional FOIA request, he asked the court to issue a preliminary injunction requiring the DEA to immediately process his request. On January 6, 2025, however, the court denied this request because Zorn had “not demonstrated irreparable harm, his request is overly burdensome, and the equities do not support granting extraordinary relief.”

Challenges by Nonparticipants

Not all parties who desired to participate in the rescheduling hearings were selected for the DEA’s list of 25 DPs. Several parties have thus far unsuccessfully sought to halt or join the proceedings on the grounds that their exclusion was improper.

For instance, on November 18, 2024, David Heldreth, who was not among the DEA’s DPs, filed a motion with the ALJ on behalf of himself and his company, Panacea Plant Sciences, seeking a stay of the rescheduling proceedings. Heldreth argued that the DEA should have allowed him and his company to participate in the hearings. In a November 20, 2024 order denying Heldreth’s motion, the ALJ stated that, “[i]nasmuch as the Petitioner was not included in the Administrator’s Designated Participants list, and has not been admitted to the proceedings in some other manner, no action can or will be taken on his Motion to Stay.”

Concurrently with Heldreth’s motion to the ALJ, he filed a complaint in the U.S. District Court for the Western District of Washington, similarly seeking to stay the rescheduling proceedings. Heldreth further asked the court for a temporary restraining order to stop the DEA from commencing the rescheduling hearings on December 2, 2024 pending his legal challenge to the DP list. He argued that the DEA (1) failed to provide proper notice of the proposed rulemaking, and (2) failed to provide opportunities for small businesses and tribal governments to participate in the hearing. The court denied Heldreth’s motion, finding that he “has not presented evidence or argument showing that he is likely to succeed” on either theory.

Preliminary Hearing and Ruling

At the December 2, 2024 preliminary hearing, the ALJ heard from counsel for the DPs and noted the availability of both counsel and witnesses. The ALJ subsequently issued a ruling outlining the schedule and parameters of the upcoming merits hearings. Hearings were set to begin on January 21, 2025, with the federal government’s presentation first.

Motion for Reconsideration & Interlocutory Appeal

On January 6, 2025, Hemp for Victory and Village Farms International asked for reconsideration of the ALJ’s November 27, 2024 order denying their request to remove the DEA from the role of proponent of the proposed rule. In a January 13, 2025 order, the ALJ denied the motion for reconsideration, finding that the movants did not sufficiently establish “a clear error of law, newly discovered evidence, or a need to prevent manifest injustice.” Importantly, the movants further requested—in the event their relief was again denied—that the ALJ allow them to appeal his decision to the DEA Administrator. See 21 C.F.R. § 1316.62 (generally requiring the consent of the “presiding officer” to appeal rulings to the DEA Administrator).

Although the ALJ maintained that he could not grant the relief sought, he granted the movants’ request for an appeal. The ALJ explained that, “to the extent my analysis is found to be in error on review, I am willing to certify that the allowance of this interlocutory appeal could potentially avoid exceptional delay, expense or prejudice to the DPs and the Government by injecting appellate certainty into the equation at this stage of proceedings.” Consequently, the ALJ cancelled the upcoming hearings on the merits, which were previously set to begin on January 21, 2025.

Proceedings in the matter are now stayed pending the resolution of the appeal. The ALJ further ordered the movants and the government to provide him a joint status update on the appeal 90 days from the issuance of the order and every 90 days thereafter.

Why It Matters

Although rescheduling cannabis from Schedule I to Schedule III under the CSA would be a limited step forward, it would represent a significant evolution of federal cannabis policy. Industry members should pay close attention to the DEA’s resolution of the appeal, especially as a new administration takes office. Stay tuned to Troutman Pepper Locke’s Cannabis Communications Newsletter and Regulatory Oversight blog for our latest analysis on the rescheduling process.

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

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Photo of Jean Smith-Gonnell Jean Smith-Gonnell

Jean has dedicated her entire career to the cannabis sector, helping growers, dispensaries, investors, receivers, and other stakeholders achieve their business goals and prepare for unexpected issues. She has extensive experience with medical marijuana, retail marijuana, hemp, and CBD products, and helps clients…

Jean has dedicated her entire career to the cannabis sector, helping growers, dispensaries, investors, receivers, and other stakeholders achieve their business goals and prepare for unexpected issues. She has extensive experience with medical marijuana, retail marijuana, hemp, and CBD products, and helps clients as they establish their businesses, mitigate risk, and resolve disputes. Known for responding to clients within 24 hours or less, Jean is also a go-to advisor for a wide range of day-to-day operational issues.

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Zie is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement Practice Group. He assists in developing effective strategies to help deter or mitigate the risk of enforcement actions and litigation. As a summer associate, Zie drafted compliance guidelines, worked on pro…

Zie is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement Practice Group. He assists in developing effective strategies to help deter or mitigate the risk of enforcement actions and litigation. As a summer associate, Zie drafted compliance guidelines, worked on pro bono matters, and created analytical memoranda.

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Nick draws on years of military leadership, project management, and legal experience to help clients solve difficult business problems from a legal perspective. His practical advice enables clients to navigate regulatory compliance and licensing issues, complex investigations, and high stakes enforcement actions that

Nick draws on years of military leadership, project management, and legal experience to help clients solve difficult business problems from a legal perspective. His practical advice enables clients to navigate regulatory compliance and licensing issues, complex investigations, and high stakes enforcement actions that arise under state and federal law.