Rescheduling Won’t End The War On Cannabis, But Could Open A New Battlefront If We’re Not Careful (Op-Ed)

“Lacing up for a victory lap over rescheduling is premature and short-sighted while federal cannabis prohibition is still alive and well.”

By Khurshid Khoja, Greenbridge Corporate Counsel

Contrary to decades of reefer madness propagated by our federal government, the Food and Drug Administration (FDA) now admits that marijuana does have accepted medical use. However, reports of the death of cannabis prohibition are exaggerated. No doubt, the conclusion of FDA’s scientific review of marijuana’s current Schedule I status is a welcome milestone in federal cannabis policy.

But while the Department of Health and Human Services’s (HHS) August 29, 2023 recommendation to the Drug Enforcement Administration (DEA) to reschedule marijuana based on FDA’s review will finally bring relief from the federal gross receipts tax levied on struggling state-licensed cannabis businesses, it also underscores the urgent need to both (1) continue pressing forward on descheduling efforts before critical momentum evaporates and certain industry stakeholders effectively settle for rescheduling without full decriminalization, and (2) demand that marijuana be exempted from existing categories of FDA-regulated products to preserve state medical and adult use cannabis markets.

Before proceeding, it’s important to remember that rescheduling would not apply the federal Food Drug and Cosmetic Act (FDCA) to marijuana for the first time—it applies right now, and like the federal Controlled Substances Act (CSA), would continue to apply after rescheduling. But absent any statutory authority permitting FDA to do otherwise, the FDCA would continue to apply after descheduling too, just as it does to hemp products. I previously noted this in “Cannabis Cannibalism: How Federal Rescheduling Could Consume the State-Licensed Industry Without Safe Harbors Under the Federal Food, Drug and Cosmetic Act,” available here.

However, moving marijuana from Schedule I to Schedule III will shift enforcement priorities (and the incentives to vigorously pursue these priorities) at both DEA and FDA. Indeed this has been the experience after the CSA’s prohibitions on hemp were relaxed beginning with the 2014 Farm Bill, and then scrapped under the 2018 Farm Bill which descheduled hemp by carving it out of the federal CSA’s definitions of “marijuana” and “THC.” Soon after, purveyors of hemp CBD products began receiving FDA cease-and-desist letters citing prohibited product claims and numerous grounds under the FDCA for prohibiting the interstate commerce in such cannabis products.

These shifting enforcement priorities have also been evident in the way that both DEA and FDA have addressed intoxicating cannabinoid products derived from hemp, which is public record. While former agency officials (retained as consultants and lobbyists by Wall Street Cannabis) have chortled that it “defies logic” that FDA would choose to regulate Schedule III marijuana when it would not regulate Schedule I marijuana, this position denies the reality of actual enforcement efforts by DEA and FDA.

As such, carving-out smokable marijuana flower as well as the “full spectrum” concentrates and other finished products naturally derived from the marijuana plant (which I’ll refer to as whole plant cannabis products) from FDA’s legal definitions of “drugs,” “food” and “dietary supplements” is a necessary step that must be taken quickly in order to preserve existing state markets, small businesses jobs, and consumer access. Doing this work now will also lay the foundation for reasonable federal regulation of such goods once descheduling permits interstate cannabis commerce.

No, Schedule I is not better than Schedule III, but rescheduling alone is not enough.

To be absolutely clear, the immediate benefits of rescheduling to Schedule III would be an improvement over the status quo, particularly for state-licensed cannabis businesses that desperately need relief from Internal Revenue Code Sec. 280E.

That said, there is no contradiction between welcoming the immediate tax equity delivered by Schedule III, and being cognizant of the other downstream implications of that move or being prepared to address them—including acknowledging that the potential imposition of criminal penalties under both the FDCA and CSA is not an improvement over criminal penalties imposed under the CSA alone, since both sets of penalties would apply to cannabis post-rescheduling.

Further, while rescheduling on its own would not immediately “capsize existing state markets and give way to further big business control of the industry,” there is a real and significant risk that the collective myopia and excessive self-congratulation among rescheduling advocates will blind the rest of the industry from recognizing that FDA can and will exercise its existing authority over “drugs,” “dietary supplements” and “food” (and, in fact, has already done so with respect to hemp products) unless we demand a new approach.

Without this recognition and a concerted effort to press this demand concurrently with the demand to reschedule, the biggest players in the industry could cannibalize decades of effort to build viable state cannabis markets (and decriminalize cannabis federally) in order to secure immediate tax relief and boost profits through rescheduling. In their rush to declare victory before fully assessing and addressing all downstream legal effects of rescheduling, large multi-state cannabis operators could risk permanently enshrining an ill-suited federal regulatory framework under the FDCA.

This current FDCA framework would not only keep smaller existing state-licensed cannabis companies from growing through interstate commerce after descheduling, but would also allow FDA to intervene within state markets for medical and adult-use cannabis products before descheduling (e.g., on the basis of interstate diversion of such products, or that the non-cannabis ingredients, components or other production inputs previously travelled in interstate commerce). Additionally, the high costs of compliance within this framework would likely ensure that only the most well-capitalized players could afford to compete.

Whether marijuana is rescheduled or descheduled, the reality is that the Schedule I designation has resulted in FDA deference to DEA on cannabis policy.

Acknowledging this reality then begs the question—could FDA become more assertive in enforcing the FDCA as it relates to state-legal cannabis goods once its deference to DEA ends? Could FDA threaten criminal penalties under the FDCA, even as harsh prison sentences and ruinous fines for Schedule III marijuana remain in place under the CSA? Would potential dual enforcement by both FDA and DEA actually be an improvement? And in those adult-use state markets where Congress hasn’t tied DEA’s pursestrings on marijuana enforcement (through the Rohrabacher-Blumenauer Amendment), could rescheduling possibly represent an escalation in the War on Drugs?

The political reality is that public demands for FDA oversight and FDA’s own marijuana enforcement appetite will grow once whole plant cannabis products legally cross state lines once marijuana is descheduled. It’s also true that FDA can satisfy the interstate commerce trigger for applying the FDCA to state-legal goods well before then, based on both their unlawful diversion and lawful purchases by out-of-state visitors.

While rescheduling by itself would not vest FDA with new powers, it would free them to exercise existing their authority under the FDCA to regulate the state-regulated cannabis industry in unprecedented ways that were politically imprudent before DEA stepped back from the Schedule I designation. It could also prompt more well-capitalized interests to leverage the high cost of compliance with the FDCA’s “drug” regime, and to lobby Congress to codify such barriers to entry, preventing small businesses and minority- and women-owned businesses from competing with them in the interstate cannabis market.

Finally, it’s telling that some advocates for rescheduling effectively parrot my proposal for an FDCA carve-out, but stop short of demanding an actual change in statute or regulation: “FDA can provide further clarity by issuing enforcement guidance that it will continue to not take enforcement action against state-legal products and activities.… [R]escheduling may need to be accompanied with additional action to ensure that the policy change achieves the desired outcomes without unintended consequences.” If we agree, then let’s just get to work securing FDA’s commitment not to enforce the FDCA against state operators in statute, and not settle for agency guidance that could be rescinded like the Cole Memo.

While FDA does not currently exercise its authority to enforce the FDCA against state-legal marijuana, and defers to DEA to police Schedule I substances, there’s ample reason to expect that FDA will exercise that authority in the event of any move to Schedule III or lower (including descheduling).

Though DEA’s authority to enforce the CSA won’t disappear with rescheduling, DEA is likely to reallocate some of its resources away from marijuana enforcement to the enforcement of criminal prohibitions on remaining Schedule I controlled substances. At the same time, FDA’s corresponding impetus to police both explicit and implied health claims about medical and adult-use cannabis goods under the FDCA will take on increasing urgency as the market for these goods proliferates across the country (just as it did with hemp CBD products).

Again, I don’t say we need the carve-out because rescheduling will give the FDA authority it doesn’t currently already have. Rather, I argue that moving marijuana off of Schedule I would end the FDA’s long practice of deferring to the DEA on Schedule I trafficking. This would be consistent with the observations of other legal scholars, namely that the FDA has historically punted to the DEA on the enforcement of federal laws prohibiting commerce and Schedule I controlled substances, including marijuana.

In addition to the foregoing arguments (from Cannabis Cannibalism), it’s also reasonable to draw conclusions by comparing the history of FDA efforts to enforce the FDCA against hemp products, both before and after the 2014 and 2018 Farm Bills effectively descheduled hemp and hemp cannabinoids.

Today (post-Farm Bills) FDA enforcement of the FDCA against cannabis products is limited to hemp cannabinoid products that are marketed and sold in interstate commerce. Before the 2014 Farm Bill however, “hemp” wasn’t yet defined in relation to the concentration of THC present in a cannabis plant. Rather, “hemp” was defined under federal court precedents to refer specifically to those non-psychoactive parts of the cannabis plant that were explicitly carved-out from the statutory definition of “marihuana”: “the mature stalks of such plant, fiber produced from such stalks, oil or cake made from the seeds of such plant, any other compound, manufacture, salt, derivative, mixture, or preparation of such mature stalks (except the resin extracted therefrom), fiber, oil, or cake, or the sterilized seed of such plant which is incapable of germination.”

At the time, hemp products could be legally imported, but hemp could not be legally grown domestically without violating the CSA’s prohibition on cultivating “marihuana.” While hemp seeds, hemp seed oil and hemp foods made from them were being lawfully imported into the U.S. under this statutory scheme, in 2001 DEA took the position that such hemp foods could be prohibited from import due to the trace amounts of THC they contained.

While FDA’s statutory authority under the FDCA to prohibit the marketing and sale of adulterated foods in interstate commerce was in full effect then (as now), and synthetic THC (or dronabinol) was already an active ingredient in a drug product approved by FDA in 1985, FDA did not take action in that instance. This may well have been because DEA was insisting that such products were not just “hemp foods” with trace amounts of naturally-occurring THC, but were legally indistinguishable from Schedule I THC itself, and prohibited from import under the CSA.

Contrast this apparent omission with FDA’s robust enforcement of the FDCA against hemp CBD products sold in interstate commerce after hemp and hemp cannabinoids were successively carved-out of the definitions of Schedule I “marihuana” and “THC” through the 2014 and 2018 Farm Bills.

More compelling still, in May 2022 FDA expanded its enforcement efforts beyond hemp-derived CBD products to capture more intoxicating cannabinoids derived from hemp as well—specifically issuing a series of warning letters to companies marketing and selling Delta-8 THC products in interstate commerce in violation of the FDCA.

Interestingly, the FDA only issued these letters after DEA’s September 15, 2021 letter to the Alabama Board of Pharmacy, responding to an inquiry by Board about the status of Delta-8 THC under the CSA. In that letter, the DEA stated that while Delta-8 THC derived from hemp was not a controlled substance subject to the CSA, Delta-8 THC produced synthetically or derived from “marihuana” would be still be a Schedule I controlled substance.

Finally, it’s also true that before certain non-cannabis substances were deemed Schedule I under the CSA and policed by DEA, they were regulated by FDA pursuant to the FDCA. This was true of LSD before passage of the CSA, as well as MDMA after the CSA was already in effect and DEA subsequently scheduled it. As such, it’s not a stretch to assume that FDA could take a more assertive approach to protecting public health, especially as the Biden Administration has framed the rescheduling effort as a move away from more punitive approaches to cannabis.

It’s Too Early for a Victory Lap, Even if Cannabis is Rescheduled by the DEA.

My proposal in Cannabis Cannibalism was about improving the results of rescheduling for state-licensed operators, consumers and regulators—and to ensure these historic changes don’t reinforce and consolidate existing inequities. My observations and proposal are not intended to attack incremental reform. Nor are they intended to discount the tangible benefits of moving cannabis out of Schedule I, or to invalidate the desperate need for relief from IRC 280E (including retroactive relief for all state-licensed businesses).

But I worry whenever advocates appear to conflate the benefits of descheduling with rescheduling. The former would completely eliminate criminal penalties under 21 USC 841 of the Controlled Substances Act, while the latter would not (and would add exposure to criminal penalties under the FDCA as well). DEA still has the ability to enforce federal criminal penalties against state-licensed cannabis businesses after rescheduling marijuana to Schedule III.

Similarly, while federal acknowledgement of the medical value of cannabis is absolutely a long-overdue and meaningful milestone, it does not insulate existing state-licensed cannabis businesses from federal criminal penalties as industry proponents of rescheduling seem to imply. Nor would it benefit social equity and/or minority-owned cannabis businesses any more or less than other businesses. Most importantly though, rescheduling doesn’t make descheduling inevitable, or offer a real end to cannabis prohibition by itself.

There is still much work to be done, even if DEA ultimately implements the HHS recommendation. Advocates and stakeholders must continue to work diligently and expeditiously toward descheduling, and ensure a workable future federal regulatory framework of whole plant cannabis products. Lacing up for a victory lap over rescheduling is premature and short-sighted while federal cannabis prohibition is still alive and well.

Citations to sources as well as the author’s footnotes are available on his LinkedIn profile here.

Khurshid Khoja is the founder of Greenbridge Corporate Counsel and chair emeritus of the Board of Directors of the National Cannabis Industry Association. He has co-authored model social equity legislation for the Minority Cannabis Business Association.

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